LIC Rules: Life insurance policies get the benefit of tax exemption under section 80C of income tax. If you have taken an insurance policy in the name of wife, husband or child on or before March 31, 2012, then you can avail tax exemption of up to 20 percent on the premium paid.
Due to many reasons, the policy of LIC comes to a standstill. If there is a problem in paying the premium or if the customer does not find that policy sufficient, then it can be thought of discontinuing it. On closing the policy, you get some money, that is called surrender value.
essentials
New you must know whether that surrender value comes under the purview of tax or not? Or should we mention surrender value while filing ITR? Can Income Tax charge us tax on the basis of surrender value?
Many people often take an annotation plan. In this plan, along with life cover, maturity amount is also available at the end. In this also there are two types of plans – with profit and without profit. That is, if LIC benefits, then it shares the profits to the customers in the form of bonus.
profit making strategy
This money is given to the customer from time to time. In a no profit plan, the maturity amount is given at the end. Under both these plans, schemes like Money Back Plan, Guaranteed Plan and Pension Plan are run for the customers.
Whenever you go to surrender such a policy, then you must know the tax rules on it. Generally, the same rule of tax on the policy is that if the premium has been paid in full for the first 2 years, then no tax is levied on the surrender value. Tax rules also apply when the policy is issued.
If it is before 31 March 2003 then it is completely tax free. On the other hand, if the policy is made between April 1, 2003 to March 31, 2012, then the tax on surrender value will be waived only if the sum assured amount is more than 5 times the annual premium of the plan.
When to pay tax
In such a situation, if the policy is taken after April 1, 2012, then the tax on surrender value will be waived only if the total amount of sum assured (for the amount of lakhs taken insured) is more than 10 times the annual premium. If the policy is purchased between April 1, 2003 and March 31, 2012 and the total premium paid in any one year exceeds 20% of the sum assured, then tax on surrender value will be payable.
Suppose you have taken a Sum Assured policy of 5 lakhs and in 1 year if you have paid 20% premium i.e. more than 1 lakh then tax will have to be paid on the surrender value. This rule will apply only when you close the policy and take the surrender value. No such rule of tax is applicable if the policy is not closed.
tax advantage
There is a possibility of deduction of tax, on the other hand, income can also be earned in exemption from tax. Life insurance policies get the benefit of tax exemption under section 80C of Income Tax. If you have taken an insurance policy in the name of wife/husband or child on or before March 31, 2012, then you can avail tax exemption of up to 20 percent on the premium paid on it.
This rule is applicable for policies taken in the name of spouse or child. If you have purchased the policy in the name of self, child, husband, wife after April 1, 2012, then the premium amount is eligible for tax benefit of 10% of the sum assured.