Insurance and Taxation

Insurance and Taxation

Immediately after joining 1st job, your uncle advised you on to buy insurance policy to claim tax benefits or the maturity value. Have you thought of Taxation for policy surrendered before maturity and when kept till maturity?

Traditional plans and unit linked plans (Ulips) are taxed similarly however Pension plans are taxed differently. There would be three cases wherein taxation comes into consideration for these plans – Upon death of the insured, surrendering the policy before maturity and Maturity proceeds of the policy

·         Upon Death of the Insured

Traditional Plans, ULIPS & Pension plans are completely tax exempt under section 10 of income tax act for Insurance policy proceeds received by the family members in the event of death of the policy holder is.

·         Surrendering the policy before maturity

For Traditional Plans& ULIPS, In casethe policy is surrendered before maturity, the taxability would depend on whether the 5 premiums paid on the policy or not. If it’s been paid, taxability would be nil. Else, the surrender value will be added to total income for the year and taxed accordingly. In case of Pension plan, First of all, the premiums that have been claimed as part of deduction under section 80C will be reversed and you will have to pay tax on it, Secondly, the entire surrender value will be added to your income and you will have to pay tax on it according to your tax slab. According to latest rules of IRDA, 2/3rd of the surrender value received should be used to purchase annuity plan

·         Upon Maturity

If the policy is live till Maturity the maturity proceeds are completely tax free whereas in case of pension plan, the maturity proceeds under pension plans are tax free up to 1/3rd of the amount, Rest 2/3rd of the maturity amount needs to be used to purchase annuity plans as specified by IRDA.

Tax saving for Freelancers, Professionals, Trader and Web based agencies

10 mins of consultation. Place a request.

Some of the featured articles from our knowledge center

Business2 13a51fd54d37dfeead10bd04c34a46671e69097acf6d8002d2665eb06b5cf58f
What is the income tax payable on partnership firm

As per section 4 of partnership act 1932, partnership means the relationship between the person who are agreed to share the profits of business car...

Business3 1835184f1312bba0b871fddd223a24dd62299180ed03a78d9e4098813c851963
What is business income on presumptive basis under section 44ad and 44ada

As per section 44AA income Tax act 1962, every person who is carrying on business or profession is required to maintain books of accounts. However,...

Business1 8b8cee9b60a38e9df92fb5b897e7c09195532b3d70b7ec28803a600cf2ce60cd
What is GST and different types of GST forms

The Prime Minister approved “The constitution amendment bill for Goods and Service Tax”(GST) in the Parliament Session (Rajya Sabha on 3 August 201...