Is the quantity obtained underneath give up of a life insurance coverage coverage exempt from taxation?

Okay.Sivaraman

As per the provisions of Part 10 (10D) of the Earnings-tax Act, 1961 (‘the Act’), any sum obtained underneath a life insurance coverage coverage, together with the sum allotted by the use of bonus aside from the quantity obtained underneath the circumstances beneath, is exempt from taxes.

• Any sum obtained underneath sub-section (3) of part 80DD or sub-section (3) of part 80DDA*; or

• Any sum obtained underneath a Keyman insurance coverage coverage; or

• Insurance coverage coverage issued on or after April 1, 2003, however earlier than March 31, 2012, the place the premium payable for any yr in the course of the time period of the coverage exceeds 20 per cent of the sum assured.

• Insurance coverage coverage issued on or after April 1, 2012, the place the premium payable for any yr in the course of the time period of the coverage exceeds 10 per cent of the sum assured (supplied the place coverage is issued after April 1, 2013, for all times insurance coverage of an individual with extreme incapacity underneath part 80U or illness or ailment underneath part 80DDB, 10 per cent shall be substituted by 15 per cent)

*Part 80DDA is substituted by Part 80DD, with impact from April 1, 2004.

Additional, Finance Act 2021 inserted a provision to Part 10(10D) of the Act, whereby the above exemption wouldn’t be out there for any Unit Linked Insurance coverage Premium (ULIP) issued on or after February 1, 2021, the place the premium payable for any yr in the course of the time period of the coverage exceeds ₹2.50 lakh. Additional, the federal government vide Notification no. 8/2022 dated January 18, 2022, and Round no. 2/2022 have notified the tactic of computation of capital features in respect of the ULIPs

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Additional, the give up worth of a life insurance coverage coverage is allowed as a tax-free profit provided that it fulfills the below-mentioned situations:

• If it’s a single premium coverage, the give up worth could be tax-free if the plan is surrendered after the completion of the primary two years

• In another case, the give up worth could be tax-free if the premiums of the primary two years have been totally paid after which the plan is surrendered

• Within the case of ULIP, the give up worth could be tax-free if the plan is surrendered after the completion of the primary 5 years of the plan.

The author is a working towards chartered accountant

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Printed on

April 30, 2022

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