On Death
I spent the past few days in a hospital. I was attending to a family member diagnosed with brain tumour.
For the first few hours, it was chaos. The implications were not clear and given the way the human mind works, everyone assumed the worst. It was later confirmed that the tumour is not life threatening.
The hospital is a place where you come face to face with real pain – age no bar. It is a place where you witness people make friends with suffering, pain and ultimately, death.
Such an environment sets one thinking. There were moments when I would just sit and wonder about the inevitable. It has to happen one day. That’s certain. What will be that day, is not.
Steve Jobs said something very apt about death-
“Remembering that I’ll be dead soon is the most important tool I’ve ever encountered to help me make the big choices in life.
Almost everything–all external expectations, all pride, all fear of embarrassment or failure–these things just fall away in the face of death, leaving only what is truly important.
Remembering that you are going to die is the best way I know to avoid the trap of thinking you have something to lose. You are already naked. There is no reason not to follow your heart.
No one wants to die. Even people who want to go to heaven don’t want to die to get there. And yet, death is the destination we all share. No one has ever escaped it, and that is how it should be, because death is very likely the single best invention of life. It’s life’s change agent. It clears out the old to make way for the new.”
The questions that came back to me again and again was “How do I live from this day to that day? What should my life be like before the inevitable happens? Is there a purpose?”
Those were the moments where I reinforced my personal life mission – the thing that I would wake up everyday for, what is truly important.
It is to be of service to you in the best possible way. The motto of Service will be the guide for every single effort I make.
I reaffirm my commitment to you and more importantly, to myself. I will continue to work to enable individuals – you – to learn about and make the best possible decisions with your money, savings and investments.
That is what I will wake up every day for. I recognise it is not going to be easy. Yet it would be most welcome.
I hope I do my job well so that when the inevitable arrives, I would embrace it with open arms and a smile.
On Taxes
Einstein said that death and taxes are the only two certainties of life. It seems death by taxes is not an impossibility as well.
Quick update: The income tax return filing date has been revised to Aug 5, 2016. Do file your Income Tax returns.
I have received several queries on the tax treatment of the of insurance policy receipts, specially the single premium variety. The other related question is on the taxation of the surrender value. Let’s do a quick review.
Are all insurance policy receipts taxable?
The straight answer is NO. Tax exemption of insurance policy receipts under Section 10 (10D) of the Income Tax Act is applicable with the following conditions.
- For insurance policies issued upto March 31, 2003 – receipts are tax free under Section 10 (10D).
- If the insurance policy has been issued from April 1, 2003 to March 31, 2012, the receipt is tax free only if the insurance cover has been a minimum of 5 times the premium.
- For insurance policies issued from April 1, 2012 onwards, the insurance cover should be a minimum of 10 times the premium to be eligible for tax exemption under Section 10(10D).
Currently, for any policy that does not fall under the above defined criteria, TDS at the rate of 2% is deducted by the insurance company from the payout (surrender or maturity).
The single premium policies would suffer the most on the taxation. The capital sum assured of such policies was equal to 1.25 times the annual premium only.
The next question is what is the tax on the insurance receipts of ineligible policies?
Is the entire amount received taxable or only the capital gains?
The Income Tax Act does not specify this clearly. My initial views about it were not informed.
The way to understand is that when the exemption is not applicable to an insurance policy, it is fully taxable. This is specially true for the single premium policies for surrender as well as maturity. The exception however is that if the amount is received on the death of the insured (even for single premium ones), it is not taxable.
In case of pension plans, on maturity of the policy, you can receive 1/3rd of the total maturity amount as tax free. The remaining 2/3rd amount would be commuted into a pension/annuity. The regular pension/annuity is added to your annual income and taxed accordingly.
If you surrender the pension plan, the full amount received by you is taxable as per your income tax bracket. No wonder, pension plans are wolf in sheep’s clothing.
When you file your Income Tax Return, show the lump-sum amount under “Income from other Sources.”
Show the annuity that you receive through your pension plan under “Income from Salary.”
If your receipts are exempt, show it under Exempt Income – Schedule EI.
Between you and me:
Once you are done with the taxes, do think about your life’s purpose as well. I look forward to reading your views, comments and thoughts.
Sorry I will put it under LTCG.
Capital Asset is defined to include: a) Any kind of property held by an assessee, whether or not connected with business or profession of the assessee.
property is not defined in the Income Tax Act so we have to use meaning from other sources. For me the Insurance Policy is my property. Kindly prove that it is not.
The Income is Long Term Capital Gain and entitled for deduction of indexed cost of acquisition (premium) to arrive at 20% Tax on balance.
The current interpretations based on circulars issued suggest that is not LTCG. Logically, you can always fight that idea. thanks for the comment.
What circulars?