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Lic new jeevan dhara table 145-10-01

RAJESH SHAH (PROPRIETOR) (43 Points)

13 March 2011

maturity proceed from lic whether taxable

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17 Replies

U S Sharma (glidor@gmail.com) (21056 Points)
Replied 13 March 2011

LIC jeevan dhara is pension plan and pension received by life assured is taxable, but any sum received by nominee in case of death of life assured is tax free.

Balaji (Knowledge Seeker) (317 Points)
Replied 13 March 2011

Dear Sharma,

I closely follow your replies.They are incisive,to-the-point and reflect an analytical mind.It's indeed a pleasure to read knowledgeable comments.

To the best of my knowledge,LIC Jeevan Dhara is a plan where we have the option to either opt for a monthly pension(which would be taxable) or take a lumpsum(which would be exempt) at the end of the term.

Please correct me if I am wrong in my understanding.Thanks.

U S Sharma (glidor@gmail.com) (21056 Points)
Replied 13 March 2011

Death Benefit:
On death of the Life Assured during the term of the policy the basic premiums paid, excluding any rider premiums or extra premiums, up to the date of death accumulated with interest at such rates as decided by the Corporation will be payable to the nominee. Currently, the interest rate is 3%, 4% or 5 % if the death occurs within the first 10 years, 20 years or thereafter respectively.

Maturity Benefit:
At maturity the policyholder can encash up to a maximum 25% of the maturity proceeds as a tax-free lump sum. The balance should be compulsorily converted to an annuity at the rates applicable at the time of maturity of the policy. The policyholder has the choice of opting for any one of 5 annuity options. The annuity options available are

(i) annuity payable for remainder of life

(ii) annuity payable for life with guaranteed period of 5, 10, 15 or 20 years

(iii) Joint life and last survivor annuity to the annuitant and his/ her spouse under which annuity payable to the spouse on death of the purchaser will be 50% of that payable to the annuitant

(iv) Life annuity with a return of purchase price on death of the annuitant

(v) Life annuity increasing at a simple rate of 3% per annum

Balaji (Knowledge Seeker) (317 Points)
Replied 14 March 2011

Dear Sharma,

Many thanks for your clarification.I guess the terms of the Plan have undergone a change.My sister had taken a New Jeevan Dhara Plan [Plan 145 11(11)] on 12/3/2001 with annual premium instalments.The last payment of premium was on 12/3/2011.Her Policy is vesting on 12/3/2012 and she has been given to understand that she has the option of either taking the full cash option or opt for pension under the various options available.Request your views.Thanks.

U S Sharma (glidor@gmail.com) (21056 Points)
Replied 14 March 2011

The annuity options available are

(i) annuity payable for remainder of life

(ii) annuity payable for life with guaranteed period of 5, 10, 15 or 20 years

(iii) Joint life and last survivor annuity to the annuitant and his/ her spouse under which annuity payable to the spouse on death of the purchaser will be 50% of that payable to the annuitant

(iv) Life annuity with a return of purchase price on death of the annuitant

(v) Life annuity increasing at a simple rate of 3% per annum

Balaji (Knowledge Seeker) (317 Points)
Replied 09 April 2011

Dear Sharma,

LIC has confirmed that on maturity of the New Jeevan Dhara policy taken on12/3/2001,the policy-holder has the option to take full cash value OR opt for pension.If opting for pension,then my sister has to choose from amongst 6 options.

I guess Jeevan Dhara policies issued later may not have the encashment option (as pointed out by you).

VAIBHAV (NO) (32 Points)
Replied 19 April 2011

My father had takan LIC jeevan dhara in 2001 and as per above comment i have options two either to take cash back or to convert it into pention plan.

In pention plan i am getting approx.9.50% interest every year as pention...and nothing else(like insurance cover)... and big drawback is ...once i convert into pention plan there is no reverse way...means cannot brack policy till life-end(death) of the pentionor ...and his nominee gets it on death...

Note that Pention is taxable.

My question is what is the best option ?

U S Sharma (glidor@gmail.com) (21056 Points)
Replied 19 April 2011

one the person gets senior citizen, his salary / business income collapse gradually.

pension, interest and income from other sources are only to be taken as taxable income, and most part of that is below threshold limit, so in real working almost 80% senior citizens are out of incometax payment, ( though they file their return as nil tax liability)

choice is yours, as 9.5% per annum / payable monthly is a good rate of interest for current market.

filoo sunil (accountant) (21 Points)
Replied 20 July 2011

Dear Mr. Sharma,

In new jeevan dhara plan, my premium amt is Rs.10 lacs and my notional cash option is Rs.29 lacs. if i select the option of Life annuity with a return of purchase price on death of the annuitant, will my surviving nominee get Rs. 10 lac or 29 lacs after my death ?

Balaji (Knowledge Seeker) (317 Points)
Replied 20 July 2011

Dear Filoo Sunil,

Though you have addressed the query to Mr.Sharma, I am taking the liberty of responding.The nominee will get the Notional Cash Option,i.e.Rs.29 Lakhs in your case.

Subrat Kumar Nayak (Officer) (21 Points)
Replied 19 November 2011

Dear Sir,

My current age is 32, and I require a pension plan and I need the pension to be statred at the age of 47 (i.e. 15 Yrs Policy). And I need Rs.25,000/- per month at that time (i.e. from the age of 47 onwards).

Kindly let me know, the amount of Yearly premium (Approx) should I pay from now and what will be the Sum Assured for the above said periods for 15 Yrs in case of LIC.

Rgds.

Subrat Kumar Nayak

jaigurudev (business) (370 Points)
Replied 18 February 2017

will any one advice me that i have received 210000 rs for jeewan dhara policy no.145 as notional cash withrawal is taxable or tax free?

Chetan Shama (16 Points)
Replied 26 July 2017

I had a discussion with the LIC manager he says the option I chose was 3, wherein I have commuted my full policy, which was allowed when the policy was issued back in 2001.after 2002 this changed.

I have read this on another website replied by a CA Mr Paras Bafna. specific to New Jeevan Dhara

1. The amount of commutation of pension is being received from a fund. The income of the fund is exempt under section 10(23AAB).

2. The option of 100% commutation was allowed by the fund referred here in above at the time of issuance of the policy.

3. Section10(10A) is the relevant section dealing with the commutation of pension and taxability of commuted pension.

4. Clause (iii) of sub section (10A) of Section 10 specifically exempts any payment in commutation of pension of pension received from a fund under clause (23AAB) of Section 10.

5. Hence in my opinion the full commutation value, which is being paid by the fund mentioned in para (4) above, is not taxable in the hands of the recipient.
6. Further, Section 10(10D) makes any sum received under a life insurance policy exempt except certain exceptions. The receipt in question is also not covered by the exceptions. Hence the amount received under the life insurance policy is exempt.

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Chetan Shama (16 Points)
Replied 26 July 2017

I have enclosed a reply dealing with old Jeevan Dhara and New Jeevan Dhara

LIC policies: are all amounts received taxable?

QUESTION: I would like to inform you that Life Insurance Corporation of India introduced a modified version of existing Jeevan Dhara plan known as New Jeevan Dhara. New Jeevan Dhara is actually a deferred annuity plan and the annuitant will get a guaranteed pension from the vesting date onwards. The annuity received is treated as taxable income.

They have given an option to the annuitant to take the maturity value in one lumpsum provided the deferment period is ten years or more. This option is to be exercised by the annuitant before six months from the date of maturity not earlier than 12 months from maturity. If the annuitant opts for the lumpsum payment, is it taxable income?

Also please let us know how the premium paid for New Jeevan Dhara policy, the annuity given to the annuitant and the lumpsum given to the nominee on death of the annuitant are treated under income tax? Usually we are being told that any amount received from LIC of India by way of maturity benefit or death claim is not taxable except annuities.

ANSWER: Jeevan Dhara policies had earlier been covered by Section 80CCA and the premium had therefore been allowed as a deduction. But this policy had to be discontinued when the deduction under Sec. 80CCA was withdrawn as regards amount deposited or paid on or after April 1, 1992, as it happened for National Savings Scheme, 1987. Since it was then allowed as deduction from income, the premium towards this policy was not entitled for tax rebate under Sec. 88. The proceeds of this policy, known as deferred annuity plan, whether received as an annuity or on surrender value or bonus or otherwise was taxable under the terms of deduction itself under Sec. 80CCA(2).

When the deduction under Sec. 80CCA was withdrawn, it would have been better that the policy as well as NSS 1987 had been discontinued or described by a different name so as to avoid the confusion, which the taxpayers generally have in this regard.

The New Jeevan Dhara Policy is also a policy under the same deferred annuity plan and should have been notified under Sec. 88. Though outright deduction is no longer available, but probably because of lack of attention on the part of the LIC, which should have moved for such notification or because of an omission on the part of the Government, there appears to be an anomaly in that the payment of premium under this policy is not eligible for tax rebate under Sec. 88, unless one understands that though it is not notified under Sec. 88(2)(xiiia), it falls under Sec. 88(2)(ii), which allows tax rebate on premium paid under "a contract for deferred annuity (not being an annuity plan referred to in clause (xiiia) on the life of persons specified in sub-section (4), provided that such contract does not contain a provision for the exercise by the insured of option to receive cash payment in lieu of the payment of annuity". But then this policy has an option for lumpsum payment after ten years so that only policies for period of less than ten years, which do not contain the option clause, would qualify for tax rebate under Sec. 88 (2)(ii) of the Act.

As for the amount received from LIC, what is exempt under Sec. 10(10A) is "any sum received under life insurance policy including the sum allocated by way of bonus on such policy other than the policy covered by Sec. 80DDA(3)". Sec. 80DDA allowed deduction to guardians of handicapped dependents is no longer available after April 1, 1994.

It may, therefore, be seen that only the amount received against life insurance policy will be exempt and not annuity policies, whether the amount paid as premium for them is tax rebated or not. Life insurance policy has not been defined. Since insurance business is taxed under the First Schedule with reference to the Insurance Act, 1938 or any provision thereof, it would be reasonable to be guided by the definition of life insurance under Sec. 2(17), which incidentally includes definition of contract of insurance for human life, the relevant extract being reproduced below:

"Life insurance business means the business of effecting contracts of insurance upon human life, including any contract whereby the payment of money assured on death (except death by accident only) or the happening of any contingency dependent on human life, and any contract which is subject to payment of premiums for a term dependent on human life and shall be deemed to include: (a) ......, (b) the granting of annuities upon human life, and (c) ......".

Sec. 4 of the Insurance Act also contemplates annuity policy as life insurance policy, as long as life risk is also covered, because even payment of annuity is only in the category of survival benefit, so that the normal inference that annuity has income character and is taxable should not be applicable. They may get exempted under Sec. 10(10D) as "any sum received under a life insurance policy" as long as it covers life risks, though it also has character of deferred annuity policy.

It is in this context, that whatever be the treatment of annuity amount, which should ordinarily be taxable, lumpsum amount under New Jeevan Dhara Policy by exercise of right of option or on death should be exempt under Sec. 10(10D).

But not all the policies issued by the LIC are life policies. Even if it is policy issued by LIC, the following are treated only as annuity policies taxable under different provisions of income-tax law:

"(1) Annuities purchased by approved superannuation funds (Refer The Fourth Schedule of the IT Act as well as Sec. 10(13) of the IT Act).

(2) Annuities and surrender value received under Jeevan Dhara (old) T.96 and annuities under Jeevan Akshay (Old) T.97 if IT concessions have been availed by the assessees as per Sec. 80CCA of the IT Act.

(3) Annuities and surrender value received under Jeevan Suraksha (T.122) policies of LIC if IT concessions have been availed by the assessee as per Sec. 80CCC(1).

(4) Annuities received under annuity certain policies issued without any bearing on human life (Table 60 & 61)".

It may therefore be generalised that other than the amount received under the above policies from LIC, all other amounts should not be taxable.

Tax Forum is obliged to Mr. B. Ramarao of Chennai (Life Insurance Consultant) for the assistance given in the clarification in connection with queries received not only from the readers but agents of LIC.

The law set out above should cover various policies issued not only by LIC but now after privatisation all life policies by any insurer.

Tax treatment to be given to the premia paid and the amount received either as annuity or surrender value or maturity are matters which should be capable of precise understanding and even assurance by the insurer and explanation by the agents. It is unfortunate that such clarity is lacking.

To answer, the specific query raised by the reader, premium paid under the new Jeevandhara policy will not be eligible either for deduction or for tax rebate, unless it happens to be a policy for a period less than ten years.

As for the amount received, since it is a policy where the risk to life is also covered, the annuity and the lumpsum received should not be taxable. Even annuity should not be taxable, where the policy is for ten years or more, since life is covered and it is not liable to tax falling under any of the four listed annuities received from LIC or even from other private insurers, if they issue similar policies because of Sec. 10(10D) of the Act.

It is again to be reiterated that it is necessary to have authentic clarification of the doubt by the insurers after consulting the Central Board of Direct Taxes in respect of each new kind of policies in the interest of not only the policyholders but to facilitate the tax collectors, who are in greater confusion on this issue than others connected with this business. Probably the Insurance Regulatory Authority of India can take steps in this regard.

S. Rajaratnam

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