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Insurance policy not exempted under sec.10(10d)

Prabhatha (Propreitor) (79 Points)

28 July 2016

What is the taxable amount in case of insurance policy not exempted under Sec.10(10D)? In one of my clients case Amount paid in single premium on 01-05-2011 is Rs. 12,12,904/- . On 31-05-2015 got back Rs. 16,40,800/- after TDS @ 2%. Now what amount has to be included in his taxable income ? Full amount or the difference of premium paid and maturity sum received? Kindly clarify

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mohammad rasool baig (Management Consultant) (1026 Points)
Replied 29 July 2016

LIC policy satisfies the definition of capital asset & it can transferred through extinguishment of rights.

The income arising on receipt of amounts under a life insurance policy would be computed as capital gains. In computing capital gains, cost of acquisition as well as cost of improvement is deductible. These can be indexed by using the notified cost index if the capital gains are long-term capital gains.

The policy would be a long-term capital asset, if more than three years have elapsed since the commencement of the policy. The initial premium paid would be the cost of acquisition, and subsequent premiums paid would be the cost of improvement of the policy. Indexation of cost would accordingly be worked out year-wise depending upon the year of payment of the respective premiums.