Surrender of ICICI pru pension plan

Hi Shalini,

Regarding your client’s ICICI Prudential LifeStage Pension Plan surrender in 2024, here’s the tax treatment based on current Income Tax laws:

1. Taxable Surrender Value:

• The surrender value received by your client is the entire amount actually received (say ₹4 lakh).

• You cannot deduct the premiums paid (₹1.5 lakh) from the surrender value to compute taxable income.

• So, the taxable amount = ₹4 lakh (full surrender proceeds).

2. Can Premium Be Claimed as Cost?

• No, premiums paid are NOT allowed as cost or expense for calculating taxable income on surrender of life insurance/pension policies.

• Unlike capital assets, life insurance policies are treated differently, and surrender proceeds are taxable as per special provisions.

3. Nature of Taxation (Capital Gains or Other Sources):

• The surrender value is taxable as "Income from Other Sources" under the Income Tax Act.

• It is not considered a capital gain because the policy is not a capital asset for this purpose.

• Also, if the policy is not eligible for exemption under Section 10(10D) (e.g., if premiums exceed 10% of sum assured), the entire surrender value becomes taxable.

Additional Points:

• If the policy is exempt under Section 10(10D), surrender proceeds are fully exempt from tax.

• But since it’s a pension plan and likely a ULIP-type policy, check the exact terms and premiums to confirm exemption.