Income tax on insurance

168 views 3 replies

shamsheer

174 Points Joined January 2012

Dear sir/madam, My friend bought a icici prudential single term plan in 2010 and showed some part of it under 80c at that time. he have redumpted this policy after 5 years completion (but the maturity period is for 20years). During redemption time icici prudential team deducted 2% of TDS on sum assured (premium + bonus) but in the starting they they said it is tax less amount, Now my question is do he need to pay tax for this amount or not required if yes Do he need to pay for assured amount or Bonus amount.

Replies (3)

Ashok Kumar

CA qualified

389 Points Joined November 2012

Sir,

Life Insurance proceeds shall not form part of Total income only in certain cases provided in Sec. 10(10D). Generally in Single premium plans, the premium amount would be more than 40% of the Sum assured whereas such exemption is applicable only in premium paid in a year is less than 20% (if taken in 2010). Hence it is taxable and TDS has to be deducted at 2% u/s 194DA (now it is 1%)

Regards,

Ashok

shamsheer

174 Points Joined January 2012

Hi Sir,

Thanks for the Reply,

So do he have to add the entite(sum assured) amount to his total income and pay tax according to slab rates? or only he need to pay tax on bonus ? or Do he have to leave it as 2% ?

Thanks,

Ashok Kumar

CA qualified

389 Points Joined November 2012

The Section 10(10D) only talks about what is not taxable and 194DA says TDS has to be deducted on the gross amount. So what amount is taxable from assessee's point of view is not clear. If such income is taxable under 'Income from Other sources', the only deduction avenue available is Sec.57(iii) which says expenditure, not being of capital in nature, expended wholly for the purpose of earning such income is deductible which means the premium amount paid upfront in your case. So I think you can subtract the single premium paid upfront from the maturity proceeds and add it to the total income at normal slabs. TDS can be claimed