Life insurance premium above 5 lakh - how is it computed?

Tax planning 265 views 8 replies

Srivatsan Narasimhan

16 Points Joined December 2022

Hi,

My friend is planning to buy 2 life insurance policies for 2.5 Lakh annual premium. If the annual premium is paid in one shot, the total premium of both policies put together per year is 5 Lakhs - so the sum assured on maturity will not come under taxation.

However, if he chooses monthly premium payment, overall amount of premium paid crosses the 5 Lakh per year limit (i.e. some of monthly payment of both policies across 12 months). Will one policy sum assured come under taxation on maturity?

Please note, annualised premium as per both policy is 2.5 Lakh each and together it is 5 Lakh only.

However, if we include the extra charges paid per month due to monthly payment option, annual premium works out more than 5 Lakh for both policies together.

Will Income Tax consider annualised premium amout or the sum of monthly payments to arrive at taxability?

Regards

Sri

Replies (8)

sabyasachi mukherjee

27922 Points Joined May 2017

Yes premium is rs.5 lakhs annual premium

RAJA P M

"Do the Right Thing...!!!"

128116 Points Joined January 2015

Not a matter if paid monthly premium or yearly premium.
You can claim deduction Rs 1.5lakh only in the same FY..
The maturity amount is based on policy terms...
So, You give details of policy term like it's EE or EEE...

Please check and confirm...
Ask details from Your agent about the policy...

Keep in mind for this :

As per the new guidelines, the maturity amount from life insurance policies bought on or after April 1, 2023, will not be fully tax-exempt. These new guidelines have come after Budget 2023 made the life insurance maturity amount taxable if the premium paid in a financial year exceeds Rs 5 lakh

RAJA P M

"Do the Right Thing...!!!"

128116 Points Joined January 2015

Originally posted by : sabyasachi mukherjee
	Yes premium is rs.5 lakhs annual premium

Please anybody complaint to CCI Administrator against this Great Expert Mr Sabyasachi Mukherjee...

Srivatsan Narasimhan

16 Points Joined December 2022

Originally posted by : RAJA P M
	Keep in mind for this :As per the new guidelines, the maturity amount from life insurance policies bought on or after April 1, 2023, will not be fully tax-exempt. These new guidelines have come after Budget 2023 made the life insurance maturity amount taxable if the premium paid in a financial year exceeds Rs 5 lakh

My question is based on the new guideline only. The policies otherwise come under 10(10d) i.e. premium amount is less than 10% of the sum assured. I am not asking about the exemption under section 80C on the premium amount paid - not going to claim 80C since it is already capped.

The confusion is because the sum of monthly payment (becomes more than 5L) vs yearly one-time payment (exactly 5L) - only the original 'annualised' premium amount of 2.5 L per policy needs to be considered and the extra amount due to monthly installments (around 25000 extra per year) need not be considered in the calculation towards premium per year, am I correct?.

Sharath chandra

Accountant

1227 Points Joined September 2015

When in doubt choose the less riskier option. don't do it in monthly mode. the premium actually paid is considered

RAJA P M

"Do the Right Thing...!!!"

128116 Points Joined January 2015

Originally posted by : Srivatsan Narasimhan
	Originally posted by : RAJA P M Keep in mind for this :As per the new guidelines, the maturity amount from life insurance policies bought on or after April 1, 2023, will not be fully tax-exempt. These new guidelines have come after Budget 2023 made the life insurance maturity amount taxable if the premium paid in a financial year exceeds Rs 5 lakh My question is based on the new guideline only. The policies otherwise come under 10(10d) i.e. premium amount is less than 10% of the sum assured. I am not asking about the exemption under section 80C on the premium amount paid - not going to claim 80C since it is already capped. The confusion is because the sum of monthly payment (becomes more than 5L) vs yearly one-time payment (exactly 5L) - only the original 'annualised' premium amount of 2.5 L per policy needs to be considered and the extra amount due to monthly installments (around 25000 extra per year) need not be considered in the calculation towards premium per year, am I correct?.