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Lic maturity proceeds

siva andhavarapu (ca final) (388 Points)

27 July 2018

HAI

CAN ANYONE PLS TELL WHAT PORTION OF LIC PROCEEDS ARE TAXABLE AS PER 10(10D) EXCEPTIONAL CASE.EVEN THE INDIVIDUAL DIDNOT CLAIM 80C BENEFITS FOR ONCE ALSO.IS THEIR ANY CASE LAW AVAILABLE TO STATE THAT WHOLE LIC PROCEEDS ARE NOT TAXABLE.

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Dhirajlal Rambhia (SEO Sai Gr. Hosp.) (160342 Points)
Replied 27 July 2018

10. Restriction of tax benefits in respect of certain insurance policies having premium of more than twenty per cent of the actual capital sum assured

10.1 Under the existing provisions contained in clause (10D) of section 10, any sum received under a life insurance policy including the sum allocated by way of bonus on such policy, (other than any sum received under a policy for the medical treatment, training and rehabilitation of a handicapped dependent under section 80DDA or any sum received under a keyman insurance policy), is tax-exempt.

10.2 Under the existing provisions of section 88, a deduction from the income-tax payable is allowed to an individual or a Hindu undivided family (HUF), in respect of any sums paid or deposited in PPF, GPF, NSC, insurance premia, etc. The deduction is allowed at specified percentage of such sums.

10.3 The insurance policies with high premium and minimum risk covers are similar to deposits or bonds. With a view to ensure that such insurance policies are treated at par with other investment schemes, amendments have been made in section 88 and clause (10D) of section 10. The existing clause (10D) of section 10 has been substituted so as to provide that the exemption available under the said clause shall not be allowed on any sum received under an insurance policy issued on or after the 1st day of April, 2003, in respect of which the premium payable in any of the years during the term of the policy, exceeds twenty per cent of the actual capital sum assured. In view of this, the income accruing on such policies (not including the premium paid by the assessee) shall become taxable. However, any sum received under such policy on the death of a person shall continue to remain exempt. The new provision also provides that the amounts received under sub-section (3) of section 80DD, shall not be exempt under this clause.

10.4 For the same reasons, a new sub-section (2A) has been inserted in section 88 which provides that the deduction in respect of the sums paid or deposited as premium under an insurance policy shall be available only on so much of any premium or other payment made on an insurance policy other than a contract for a deferred annuity as is not in excess of twenty per cent of the actual sum assured.

10.5 It has also been clarified in both the sections that the value of any premiums agreed to be returned or any benefit by way of bonus or otherwise, over and above the sum actually assured, which may be received under the policy by any person, shall not be taken into account for the purpose of calculating the actual capital sum assured.

10.6 These amendments will take effect from 1st April, 2004 and will, accordingly, apply in relation to the assessment year 2004-05 and subsequent years.

[ Sections 6(c) and 47(b)]