Is Surrender Value from ULIP taxable ?

Tax planning 2719 views 2 replies

Akyman

Student

3 Points Joined February 2018

My mother aged 58, ( a home-maker) took a ULIP HDFC Endowment Supreme Suvidha policy in 2010.

The premium amount was 1 lakh per annum, and she paid three annual premiums (2010,2011,2012) and afterwards policy was made paid-up.

The Life cover was of 5 lakh rupees.

She surrendered the policy in Feb 2018 , and have reveived 3.73 Lakh rupees.

My question is

1) Whether this amount is taxable ? AFAIK the policy was surrendered after five years and life cover amount was 5 times of the premium so there is no tax liability. Please confirm this.

2) My mother has never filed any ITR before. So should we file ITR for fy 17-18 and show this amount in exempted income? ( if its not taxable).

3) Now she wants invest this money in fixed deposit in my father's name. Is it advisable to do so ?

Replies (2)

Dhirajlal Rambhia

SEO Sai Gr. Hosp.

196737 Points Joined July 2016

Unit Linked Insurance Plan (ULIP) / Traditional Plans:

Receipts added to income and taxed as per applicable tax slab rate.

Tax deducted at source (TDS) under section 194DA of IT Act (effective from 1st October 2014) if total amount exceeds R1 lakh @
- 2% if valid PAN card is present
- 20% if valid PAN card is not present

Receipts are tax free in case of:
- policies issued up to 31.03.2003
- policies issued between 01.04.2003 to 31.03.2012 if sum assured is more than five times the annual premium
- policies issued from 01.04.2012 and onwards if sum assured is more than 10 times the annual premium

1) Whether this amount is taxable ? AFAIK the policy was surrendered after five years and life cover amount was 5 times of the premium so there is no tax liability. Please confirm this.

Ans: Taxable. As the Insured Value is just 5 times the annual premium paid.

2) My mother has never filed any ITR before. So should we file ITR for fy 17-18 and show this amount in exempted income? ( if its not taxable).

Ans: Being taxable income above exemption limit, filing ITR becomes mandatory.

3) Now she wants invest this money in fixed deposit in my father's name. Is it advisable to do so ?

Ans: she can invest in her name jointly with your father, if like.

Akyman

Student

3 Points Joined February 2018

Thank you sir for replying 1. As per section 10(10D) in case of a life insurance policy issued after 1.4.2003 but on or before 31.3.2012 if the premium payable in any year exceeds 20% of the actual sum assured, then the policy proceeds would be taxable in the hands of the insured. Our annual premium = 1 lakh Sum assured= 5 lakh In our case premium does not exceed 20% of the sum assured. 2 Moreover no TDS was deducted from surrender amount.