surrender value taxation

Surrender Value Taxation – Must know insurance facts

by

I am increasingly convinced that insurance (specially the investment variety) is a super complex product. There are so many ifs and buts attached to the product. It could have been otherwise so simple to understand and buy.

With the current product structure, it is just not possible for a layperson to understand and evaluate the product and make an informed decision. And on top of it, there are tax laws.

Well, I guess there is no point complaining. We will have to learn to navigate through the jungle.

Recently, I received the following query from a reader. It is about surrender value taxation of a life insurance policy. 

I have two LIC policies in my name: LIC Jeevan Anand (issued in August 2006 and maturing in August 2021) and second, LIC Jeevan Saral (issued in November 2009 and maturing in November 2024).

I want to surrender these two policies. I want to know the tax implications:
  1. Will the surrender value be taxable in my hands?
  2. Will the 80-C benefits claimed in earlier years by me will have to be reversed, if any?

What is surrender value?

Surrender value is the amount that a person will receive from the insurance company if s/he decides to terminate a life insurance policy (with an investment component such as money back, endowment or ULIP) before its maturity date.

So, if you buy a policy for 20 years but you decide after 10 years that you do not wish to continue with the policy, then you can surrender it and receive the current value of the policy. Such value is called the surrender value.

Most insurance companies specify the formula that helps you arrive at the surrender value.

Surrender Value Taxation

Coming back to the reader’s query, the answer to both the questions can be YES.

Surrender value can be taxable. You may also have to reverse any benefits that you claimed under section 80C of the Income Tax Act, 1961.

But relax! The tax implications occur only under certain conditions.

Let’s first take the first question about surrender value taxation.
You will NOT have to pay tax on the surrender value of your policy, if:

  1. You have paid your insurance policy premiums for at least 2 years after buying the policy.
  2. In case of single premium policy, you have held the policy for at least 2 years.
  3. In case of ULIPs, this term is minimum 5 years.

However, if the above conditions are not fulfilled, the surrender value taxation applies. You would have to disclose the income as a part of your “Income from other sources” for the financial year in which you received the surrender value and taxes would have to be paid as per your tax bracket.

In the query that I received from our dear reader, the premiums have been paid since 2006 and 2009 respectively, for the 2 policies. Hence, there is NO TAX. My reader is safe. 🙂

Download the latest eGuide on Taxation of Surrender Value of LIC, Pension Plans and ULIPs. Click to find out more.

Now, we will look at the second question of reversal of 80C benefits.

If you have held the policy for at least 5 years after buying and then surrendered it, then you DO NOT have to reverse any section 80C benefits too, that you claimed in the previous years.

But, if you surrender before completion of 5 years of the policy, you will have to reassess your tax liability in all the previous years in which you claimed exemption for the premium and pay additional tax, as applicable for those years.

As for my reader’s query, the policies have been in existence for over 5 years and hence, there is NO reversal of the previous years tax benefit too. Enjoy!

Pension plans and Surrender Value

In case of PENSION plans, if you surrender before maturity, the entire surrender value is taxable at your current income tax bracket rate.
You would also have to reverse all the tax benefits that you received under Section 80C of the Income Tax Act.

Does term insurance have surrender value?

Term plans by their nature do not have any surrender value. They continue as long as you pay the premium. In case of death, the sum assured or the insurance cover amount is payable to your dependents or nominees.

If you stop paying the premiums, the policy just stops functioning. As simple as that.

As a general rule, you should buy only term plans for your life insurance needs. There are better stand alone products to take care of the investment requirements.

Note 1: Insurance premiums paid for self or spouse or children is subject to exemption upto certain limits under Section 80C of Income Tax Act. You do not have to pay tax on such income which you have shown as life insurance premiums. Currently, you can claim premium deduction of upto Rs. 1.5 lacs in any financial year.
Note 2: It is advisable and recommended that you consult your tax advisor about specific aspects of taxation as applicable to you.
Between you and me:
Have you downloaded the complete Guide to Surrender Value taxation? Find out more.Tax on surrender value of ULIP, endowment, pension plans

211 thoughts on “Surrender Value Taxation – Must know insurance facts”

  1. Dear Mr. Vipin

    I have been following your blog and was trying to follow the taxation laws in india relating to proceeds from life insurance policies:

    I received 2 maturity proceeds in FY 2016-17 on the following ICICI pru life policies:

    1. ICICI Pru Life Life Time Super Pension policy- acquired in Feb 2007
    The policy matured in Feb 2017 after the vesting period of 10 years. I had paid 3 annual premiums as per the policy to keep the policy alive. I received maturity proceeds in Feb 2017 after deducting 30% tax as I am an NRI.
    Can you advise if the proceeds are tax free or 1/3 rd tax free?

    2. . ICICI Pru Life Life Time Super Pension policy- acquire in July 2007
    I surrendered the policy in June 2016 due to financial reasons before the vesting period of 10 years. I had paid 3 annual premium to keep the policy alive I received maturity proceeds in June 12016 after deducting 30% tax as I am an NRI.
    Can you advise if the proceeds are tax free or 1/3 rd tax free on this policy?

  2. Dear Sir,

    I have taken a 20 year LIC money back policy in June 2016.
    Till now I have paid 8 premiums, now it is becoming difficult for me to pay the premiums and I want to surrender the policy. Will I get the amount paid by me till now, after deducting the penalty amount?

    • Hello Namrata
      You would surely get some amount on surrender.
      Please check your policy details about the surrender value. You can also contact your LIC agent and ask him.
      Thank you

  3. Hi Vipin,

    I have ICICI Pru Pension policy that is maturing in Aug this year. I understand that I can take 1/3rd of the maturity amount tax free, while I have to buy annuities for the remaining 2/3rd of the amount.

    My question is, can I opt to buy annuities from a different insurer, other than ICICI Pru? If so, will ICICI Pru deduct any TDS, or is there any other tax implications?

    Thanks and Regards,
    Sandip

  4. I have an ICICI Prudential LIFETIME PENSION Policy purchased in Feb, 2004.Policy term is 20 years i; e. its maturity is in 2024. I want to surrender the policy. The premium paid value is app. Rs. 1.40 lac and the total current value of the Units is app Rs. 2.5 Lac. I want to surrender the policy. Please advise whether the return is taxable or not. I have also emailed to icici prudential customer care regarding this and the customer service has replied that the return from the policy comes under Long term capital gains and for better clarification I should consult a local CA. Pl. advise me.

  5. I have taken LIC bima bachat on 04.03.2013 for sum aasured of Rs. 35 Lakh where premium payment term is only one year. i paid one time premium of Rs. 23,86,685. i took loan from a bank on LIC . after 2.5 years bank surrendered that policy and cleared his outstanding amount of Rs. 15 lakh. bank got 18 lakh as surrendered amoount

    Pls advice tax treatment of surrender amount in my hand
    also how to show it in income tax return

  6. Hello Sir,

    I was googling for Pension policy tax issues, and found your site valuable. I have read through the couple of comments and replies and understood that if Sum Assured is 10 times of premium paid – the surrender value is non taxable.

    Here is my case, I bought below Pension plan in Jan 2007 and paid premium of Rs.50,000 pa regularly for past 9 years. As I don’t want to continue, I would like to surrender the policy.

    Plan Name: ICICI Pru LifeTime Super Pension
    Plan Nature: ULIP
    Plan Category: Retirement Plan
    UIN No: 105L055V01

    Premium: 50,0000 pa
    Sum Assured: 5,00,000 (10 times of premium paid)
    Surrender Value: 7,65,000 (as of today)
    Maturity: 2029

    My query is – As the sum assured is 10 times of premium paid – still the surrender value (7,65,000) is fully taxable? Insurance people are saying they will credit the full amount to my account and it is fully taxable as it will be considered as income. I have to file TDS as per my tax bracket. If it is taxable – please advise if there is any other options to avail the amount tax free?

    Please advise, you an early response will help me a lot.

    • In my understanding, with Pension plans, the sum assured does not matter. The surrender value will be fully taxable. You can resort to section 80C, 80D investments to save taxes. Nothing much else.

      Thank you

  7. Sir
    I Have a policy of ICICI Life Stage Pension Plan purchase in 2008 Premium is 15000/-Yearly. I have paid 10 Installment and Term for 15 Years as on date Fund Value is 255000/-.
    I want to Surrender the Policy. In this connection i talk to an ICICI adviser and she advice me that Your 1/3rd Surrender Value will neft to your account which will be tax free.( Ready to give me in Written) and Rest 2/3rd Surrender Value will reinvest to ICICI Maxi miser Policy which are totally Tax Free on Maturity. But you have to pay regular for at least equivalent 2/3rd Value for 5 Years. By this way you will totally safe from Taxation. i Want to know it is true? can i go with her Please advice.09818866086

  8. Sir, I bought a ULIP Future Gain from Bajaj for which I’ll pay 2lac annually for 5yrs and will receive maturity amount on the 10th year, sum assured is approx 14.5lac. The plan is growing at snail pace and I(think?) wish to put more monthly amount in my PF than here.
    I have two scenarios:

    1. I have paid 2 premiums (2015,16), I discontinue this and I will receive maturity amount after 5yr(lock-in period).
    2. I continue paying till 5 yr and receive the maturity amount applicable in the 10th yr.

    Which case more tax benefits are their ?
    In any of the cases will tax apply on the premium paid or will taxable income be calculated deducing premium ?
    I have never claimed any benefits (80c or anything).

  9. hello sir
    I bought a ICICI life time super pension plan in 2007 and paid premium of 18000 pa for 7 years. this policy is ULIP(as per their policy documents). and will mature in two months. i do not want to get annuity /pension nor 1/3rd amt etc. i want my fund value(2.75L now) in one go by surrender of policy. my query is that if ICICI people will deduct TDS on surrender value. because in office of ICICI all wash off their hands by telling that they are not aware of it and the decisions are taken in their back office. If TDS is deductable then what will be the rate of tds. My total annual income from all source is 3 lakhs and pay no income tax.
    an early response will help to take final call
    thanking you in advance.

    • TDS is likely to be 2% of the surrender value. You can add this amount to Income from other sources. you also have a choice to make more investments under various sections and save taxes.

  10. Sir
    I have just paid one time premium of 2537500/- for buying LIC’s Jeevan Akshyay policy for 25 lakh. The policy certificate is yet to be issued. However, now I want to cancel this policy & get Jeevan Akshyay policy of 10 lakh. I have been told that it can be done if I give a letter to LIC attaching my policy immediately within 15 days of receipt of policy & then LIC will refund the entire amount. In this case my question is as follows:
    1) Since this money has just been paid by me & LIC is immediately returning the said amount is it necessary to show it as income from other’s source in IT declaration
    2) Is their any tax implication for getting back the money from LIC in this case

  11. Hello,

    I’ve two ICICI Prudential Pension Plan Policies .As of now I am giving annual premium regularly.

    Icici Pru Lifestage Pension (Started from 2008)
    =================================================
    Premium – 22000 (Yearly), No Sum assured . Current Fund Value is more than invested. Maturity Year=2027 .(Policy Term=19 years)

    Icici Pru Lifetime Pension II (Started from 2006)
    =================================================
    Premium – 10000 (Yearly), Sum assured=170000 . Current Fund Value is more than invested. Maturity Year=2023 .(Policy Term=17 years)

    If I surrender these policies will the surrender amount be taxable.Shall i get only 1/3rd of the total amount?

    If i will continue paying premium till maturity year then Shall i get only 1/3rd of the total amount and rest 2/3rd will get as pension?

    Please advice

    Thanks in Advance.
    Smita

    • If you surrender your policies now than the entire amount received will be taxable as per your tax bracket. If you wait till maturity, then you will get 1/3rd amount tax free and the rest will be coming as annuity (pension), which is to be treated like regular income.
      Hope this clarifies.

      • Thanks for your reply.

        If i don’t surrender now and continue paying premium ,can you please tell me approx what will be my monthly pension amount for both the policies.

        Or will be be wise to surrender the policies by looking at the fund performance and invent the amount in other policy.

        Thanks

  12. Hell Sir
    I had purchased a smartkid- New ULRP of ICICI prudential which i want to surrender now
    My policy term is 22 years and i had paid my first installment on 23.03.2009.

    Please tell me if is there is any tax implication on me.

  13. Hi Vipin,
    I have read your articles and responses to your comments. I think I also have similar problem as one other readers. Please guide me.
    I have purchased a policy SBI Life Unit Plus-II- Growth Pension Option II (With life cover) in Feb 2009 and paying Rs.30000 premium annually. Current premium is due next week.
    Sum Insured: 150000
    Benefit term: 24 Yrs
    Total Premium Paid: 240000
    Fund Value: 380000
    I want to surrender this policy as I was under the assumption that it is ULIP but now I understand difference between ULIP and Pension plan especially tax treatments after maturity / surrender. So there is no point in waiting till 2033.
    I would wish to surrender this policy and invest it in Mutual Funds or other instruments where there is no tax at maturity eg – PPF.
    I am in 30% Income Tax slab. SBI Insurance person told me that I will have to pay tax only on profits (380000-240000). But after reading your article it seems that, I will have to pay tax on entire surrender value. Can you please confirm?
    Also is there any way to change Policy years from 24 to 12 so that at least 1/3rd fund value will be tax free. In any case paying 30 % tax on surrender value makes sense to me as I will be lucky to at least get my principle amount back because if market goes down I may even loose Principle amount thanks to tax treatment on pension plans.
    Hoping for quick response to decide about the policy as premium is due for this year.

    Thanks,
    Rahul

  14. Dear Vipin ji,
    Thanks a lot for your immediate reply.
    God bless you!
    Actually I am saddened that I hv limited options to save tax.
    Sir, I dnt wish to pay a rupee to Govt.
    Sir,Pl.suggest where I should park my money so that no tax implication & liquidity available to me after one or two years!
    My top priority is No Tax to be paid

    High regards,

    Anil Shahapurkar

  15. Dear Vipin ji,
    Gone thr’your quick replies,
    I highly appreciate you!
    Request your kind advice of my case

    ICICI pru lifelink Wealth SP
    (funds invested in mutual funds as per Dynamic P/E ratio)
    (2 Ulips > 5 lac + 3 lac= 8 lac)
    Date of Inception 22 March 2011
    Date of Surrender: 28 April 2016
    Period of surrender : 5 years
    Policy Term:10 Yrs.
    Surrenders allowed after 5 yrs(Zero charge)
    Pr
    IRDA>Unique Identif No(UIN): 105L111V01
    Single Premium paid 5 Lac + 3 lac
    Sum Assured: 6.25 lac + 3.75 lac respectively
    ie sum assured is 1.25 times premium.
    TDS deducted Rs 21000 as per 194DA
    As sum assured is less,Payout(proceeds) are taxable
    Currently I am unemployed( Took VRS in 2002)
    I do not file ITR as with my meagre income,I just somehow manage for day to day expenses with austerity.

    I was uninformed person in investment domain in 2011..Later I learnt through google.
    I had read policy doc in freelook period.
    The Prudential manager mis-sold policy to me saying initially lockin period is just 3 yrs.
    However policy shown 5 yrs.
    I was about to cancel it then only.
    He requested to continue assuring me that no exit load at surrender & Payout would be totally taxfree.

    However at surrender in Kolhapur office,the person said payout is fully taxable!
    It was shocker to me & I suffered from Blood pressure since then( my age 53 yrs)

    He said that as Govt has started TDS since 1 oct 2014(amendment), the info goes to incometax & you hv to file ITR showing in income from other sources & as per standard tax bracket.
    I hv pan card( during my pvt service 88-2002.Company account deptt took care of it)
    After 2002,as no income, no ITR filing.
    I look forward to you as saviour & hope you would help me in guiding me.
    I am deeply worried what to do!!
    I don’t want to pay any incometax as I m from low income person & I earned my money with full honesty & with hardwork.

    My query is.
    Is law of indexation can be applied while calculating capital gains in my case.
    800000*1125/785= 11.465 lacs.
    My payout is 10.67 lacs.
    So in short,my gains are in negative.
    No appreciation of my investment after 5 years.

    Sir, what is tax implication in my case in view of above stated facts.
    Sorry for lengthy query.
    High Regards to you & my best wishes..:))

    Yours faithfully,
    Anil Shahapurkar
    anilshahapurkar95@gmail.com

    • Unfortunately, capital gains calculation does not apply on insurance policies. You would have to pay the tax as per tax bracket. My suggestion is that you use tax planning tools such as 80C investments and others effectively to minimise your payout.
      Hope this helps.
      Thank you

  16. Hi Vipin
    I have a ICICI Prudential LifeTime Pension II – ULIP plan, with the years tenure (10000 Yearly Premium) and the sum assured is 120000. When I went to ICICI Prudential office, initially they told the entire amount is taxable, but another person, after seeing the sum assured value, told only the Surrender value-Sum Assured is taxable. I have paid 11 installments (110000) and current value is 210000. So, is the entire amount is taxable or only the gains (100000 in this case) or fully exempted? Appreciate your response. Thanks

      • Hi Vipin,
        I have the same policy since June, 2005.
        In case of surrender, will I also have to buy annuity for 2/3?
        If this is true, then is it not advisable to carry on with the policy because at maturity, 1/3 will be tax free, and for remaining 2/3, annuity needs to be purchased?
        Regards,
        Gaurav

          • Hi Vipin,
            Thank you for your reply.
            As per your article above: “in case of PENSION plans, if you surrender before maturity, the entire surrender value is taxable at your current income tax bracket rate. It is also necessary to purchase an annuity with 2/3rds of the surrender value.”
            When is the mandatory purchase of annuity applicable from?

          • Gaurav, that remains somewhat of a grey area. As per the current understanding, the tax has to be paid on the full surrender value of the pension plan. If that is done, then annuity should not be required.

  17. I am currently holding HDFC pru life policy started in 2014 Dec with yearly premium of 30k .I have paid 2 yearly installment .Now I don’t want to continue this policy but this policy has 5 year lock in period so surrender amount i will get by 2018 dec.Will my 80 c exemption will be applicable and will the amount I get after completion of 5 year will be taxable.If the amount is taxable then it will be on the interst I got it on premium amount or the total surrender amount .

  18. Hi sir I bought lic Jeevan shri in 2001 for 5 lakhs,it’s last year for payment,I will get return after 8 years, should I surrender policy now , what value will I get if surrender or is it better to wait for 8 years

  19. i had bought a unit link policy in 2007 for annual premium of 10000 and sa 300000 and was paying the premium
    i want to surrender the policy bajaj will deduct 1% of tds will the rest of the amount be taxable or tax free if taxable where should i show the income
    thanks

  20. dear sir,

    i had purchased the “ICICI Prudential LifeTime Super Pension” in 2007 and continued till 2014, from two 2 year my policy is holiday mode. Now i want to surrender my policy . tell me is surrender amount is taxable.

  21. Dear Mr.Vipin,
    Appreciate your advice on my following query / confusion:
    – I had opted for ” ICICI Life Time Super Pension” in 2007
    – A premium of 2L was paid every year for 5 years from my NRE a/c
    – Now, after 10 years (4th Jan ’17), I have opted out with surrender value of 35L (10 premiums @2L pa).
    – I receive mixed signals about the tax applicability of this amount
    Highly appreciate if you could share some advice / inputs on the tax applicability given this scenario.
    Kind Regards,
    Dinesh

      • No Tds was deducted and the entire amount was credited to my account.Now I am confused. My payment of premium out of my Nre account and gain over 10 years. Are these taxable

  22. Dear Vipin

    I have bought LIC – New money back policy in Dec-2013 and I don’t want to continue now
    I am paying the premium of Rs3200 Per month and Sum assured is 5 Lakhs

    Which option is good ? Either Paid up or surrender ?

    If it is to be surrendered , How to reverse the 80c benefits which I got in previous years (I came to know from you , Surrender value is tax free)

    In Paid up , Will I get money back every 5 years ?

    Thanks
    Ravi

    • Dear Ravikumar

      You will NOT have to pay tax on the surrender value of your policy nor reverse Section 80C benefits, if:
      You have paid your insurance policy premiums for at least 2 years after buying the policy.

      In case of ULIPs, this term is minimum 5 years.

      For paid up option, will you get money back after 5 years – you should check with the insurance company.
      Thank you

  23. Hi sir
    I took Bajaj Allianze ULIP on 2007 and paid the 1st four premiums and then converted it to paid up status.The policy will mature in 2017.I just want to know whether the maturity value is taxable.
    Regards
    Yogyan

  24. I have a ULIP
    Annual Premium – 50000
    Policy Paying Term – 5 Years
    Maturity – 10 Years.

    Till now I have only paid 1 premium for 50000.
    My 80C for the previous year was
    Above Policy Premium – 50000
    PPF – 100000
    PF – 38256
    Total – 188256
    Eligible Amount (For 80C) – 150000

    Now if I terminate this policy and stop paying premiums, after five years when I will get this 50000+ amount do I have to pay tax on whole of it or just the amount for which I have claimed 80C benifits (150000 – 138256 = 11744).

    Kindly help.

    • Meraj
      Please check with your insurer, how many minimum premium you need to pay. It will definitely be 2 or more. Else you stand to lose all your money.
      After paying the premium, when you take your money out after 5 years, you pay no tax on it. This is assuming that your Sum Assured was 10 times of your premium.
      Thank you

  25. In current financial year, I surrendered my Bajaj Allianz Shield Plus Single Premium policy bought in 2010, and the proceeds were paid to me after deduction of 1% as TDS. The amount and TDS are appearing in my 26AS tax deduction statement.

    Kindly inform if the proceeds on such surrender are exempted fully under Income Tax section 10(10D) as was claimed in prospectus when I put money into this policy.

    Do I have to show this as my income, and if yes under which area of the simple I T Return; or that there is no tax to be paid on this surrender value and I claim refund of the TDS already deducted.

    • The surrender value is fully taxable of your Sum Assured was less than 5 times the premium. The amount is to be shown under income from other sources, tax to be paid as per your tax bracket.
      Thanks

      • Thank you very much for replying so promptly.
        As I indicated it was a single premium policy and I held it from 2010 till 2016, which will be more than 5 years.
        Is the surrender value still fully taxable please ?

        Thank you very much in advance

  26. I HAVE PURCHES LIC ULIP PLAN ( ENOWMENT PLUS)SINGAL PREMIUM PAID
    3 POLICY EACH PREMIUM 250000*3=750000 SUM ASSURED 325000*3 DOC FEB.2011
    AND I HAVE SURRENDERD THIS POLICY MARCH 2016 I HAVE RECIVERD INR.360800*3=1082400 TDS 2% 21648 I HAVE RECEIVED RS 1060752
    WHERE SECTION I SAW IT.IN MY ITR ASSEMENT YR.2016-17
    PLEASE GUIDE ME.

  27. I had ICICI Pru – LifeTime Super Pension Plan

    Bought in Dec 2006
    Matured in Dec 2016
    Sum Assured 125000 INR
    Premium per year – 25000 INR

    400000 INR was paid as maturity cheque

    1. What is the tax amount on 400000 INR maturity cheque or is it tax free ?
    2. Where do I need to show while filing tax return?

    Please help and suggest. Thank you very much.

    Salary income 2500000

    • Not sure why you would receive a full payment in a pension plan. For pension plans, only 1/3rd maturity amount is tax free. Rest taxable as per tax bracket under Income from Other sources.

      Thank you

      • Thank you for your reply. Where do I need to show the amount in the ITR ? Also the TDS was not deducted by ICICI so is there additional tax liability due to that ?

      • Hi Vipin,
        I want to surrender my ICICI Pru life Stage Pension Policy. Can I get the entire surrender value and pay the tax according to my tax bracket or only 1/3 amount as tax free and 2/3 i need to invest in another annuity

        • Hi Rajesh,
          A pension policy if surrendered attracts tax on the entire value. The tax is paid as per your tax bracket rate. Only on maturity the 1/3, 2/3 formula applies.
          Thanks.

  28. Hi Vipin,
    I have my ICICI PruLife Super Pension policy maturing shortly. I have paid annual premium of Rs. 60 K for 10 years and now the fund value is around Rs. 10 L. The options offered to me are to either start receiving annuity on the full fund value or withdraw 1/3 of the fund value and receive annuity on the remaining 2/3. I want to know if I can withdraw the entire fund value and if I do so, what would be the tax implication? I understand that withdrawal of 1/3 fund value has no tax implication. Would I have to pay tax on 2/3 fund value if I withdraw the entire fund? I would like to invest in other avenues as the annuity offered seems to be very small.
    Thanks.

    • Hi

      The thing with Pension plans is that the on maturity the annuity is compulsory. You cannot withdraw the entire amount. What you can consider doing is take the annuity and if you don’t need the amount, then reinvest it systematically, in a better avenue.
      Any idea what is the rate that they are offering on the Annuity. FYI, LIC is supposed to offer the best annuity rates.

      • Thanks so much for your very quick response. I was under the impression that I could withdraw the entire amount and pay whatever tax is applicable, with the view that even if I have to pay tax I would be better off investing in a good system withdrawal plan. Therefore wanted to know what would be the tax liability.

        With regard to the rate of annuity, I am still unable to get a clear picture from them. I do have a quote from them in PDF format that I can forward to you. Please let me know how I can do this.

        LIC has closed their immediate annuity plan for now. Therefore I am at a loss as to what to do in this scenario.

  29. Dear Mr. Bipin,
    I had taken a Prudential ICICI Pru Lifestage Pension policy in Dec 2008 and the annual premium is Rs.50000/- The tenure is 10 years. I would like to know whether the maturity amount will be taxable and if so whether it would be advisable to surrender it now and invest the amount somewhere. The policy is unit linked.
    Thanks and regards

  30. Hi –
    I have a Bajaj Allianz policy and all my premiums are paid via my NRE account. As a result the maturity amount will be credited back to my NRE account. Does this incur any TDS at all? I am almost certain that money credited back to NRE account will not have TDS deducted. Can you guide?

    -Rakesh

    • Dear Rakesh,

      In the absence of any other details, here is what I think:
      If your policy is a regular premium ULIP and fulfils some essential criteria as laid out in the article, then only the maturity proceeds will be taxable. IN that case, TDS will also be deducted.

      Thank you

  31. Hi, I am an NRI. My policy is Bajaj Alliance New Unitgain Plus which I invested in 2006 for a term of 10 yrs. So it is due to mature. Prem period was 5 years and annual premium was 1/5 the sum assured. Premium paid through local funds only. The company says that maturity proceeds are subject to TDS. I think proceeds are tax free under 10(10D)as sum assured is 5 times the premium. So why the TDS? How is my NRI status anything to do with TDS? The proceeds will not be repatriated.
    Kindly advise

    • Der Bharati

      It is not about your NRI status.
      The maturity proceeds are tax free. However, payments made by life insurance companies above Rs. 1 lac are subject to 2% TDS. You can file your tax return in the coming year and show the insurance maturity proceeds in exempt income and the TDS as tax already paid. If there is no other tax you have to pay, then you can claim this as refund.

      Hope this clarifies.

  32. i have a pension plan of icici pru. and paid 7 year premium now i want to surrender this policy and i want to know tds applicable on surrender value as icici pru. say to me and surrender value add my income for tax purpose

  33. I am paying premium 1500 Rs monthly for ICICI prudential pension plan since 2007 and still continuing ,if I surrender now whether it will be taxable.

  34. If someone receive 200000/- on maturity of ULIP and his income from other sources is rs.230000/- . whether he is liable to file return under income tax return.

    • Dear Shekhar,
      It is best to file your returns and show all incomes that you have received. Having said that, since our income is below threshold you will not be liable to pay tax (based on numbers that you have shared).

      The ULIP maturity money has to be shown under Schedule of Exempt Income or EI in the income tax return.

      Hope this helps.
      Thank you

  35. Thank you again for quick reply. How much normally they charge for tax is it like 18 lks – 10.5 Lks * 33% ?

    Any idea ?

    • Unfortunately in this case all of it will be taxed and not just the gains. The rate of tax will be based on your tax bracket. So if you don’t have any other income in India, the average rate may turn out to be lower. Thanks

    • In my opinion, pension plan surrender value is fully taxable. It is likely that the insurance company would deduct TDS too.

      you can subsequently file your tax return and pay additional or claim refund, as the case may be.

      Thanks.

  37. Hi Vipin,

    I had 2 ICICI policies, started in 2009 and 2010, and i have paid 5 years continuously 2 lks and 1.5 lks per year respectively.

    Now i am planning to surrender which may come around 18 Lks, ( i paid 10.5 lks)

    Is it anything have to pay for tax. I am an NRE .

    Thanks

    Sai Das T

  38. I bought ULIP linked ICICI pension plan in 2007 and paid only 5 premiums of 18000 PA since the policy date. Now this policy will mature in March 2017. Instead of pension or annunity, i want my fund value in one go so that i can invest in other safe instruments. As per letter received from ICICI few days back there are three options other than what i require. How can i get my money worth the fund value back. I am a school teacher and my total annual income from all sources does not fall in income tax bracket. please suggest how can i get my money back . Its fund value worth is approx 2 lakhs now as on date. please guide

      • Thanks a lot for your response
        as per their letter three options are
        1.either get annual pension of approx Rs 16 PA or monthly pension of app. Rs.1.3K( these amt are derived based on present fund value)
        2. get 30% of fund value back and balance 70 % amt will decide the revised pension amt.
        3. stay invested and defer the pension plan for another till i attain 70 years of age.
        I am 48 years old now

  39. Hi,
    Saw your responses quite informative. I hold ICICI Prudential Lifetime ULIP policy with maturity date in 2078( not sure if this means that it is open ended ulip policy as i would be 100 years by then!!!). I started the policy in Nov 2003 and have been paying it regularly till now. Life cover on the same is 125000 with the annual premium being 25000. I believe the fund is not performing well and hence would like to surrender the same. Current value based on the units I have is approx 650000. In view of the same, i would like to seek your view on the tax implication if i surrender this policy now. Please note that this was not a pension policy.

  40. Sir,
    I had taken LIC Jeevan Sathi POlicy which is market based (GROWTH) policy taken on dt. 21/08/2009 for total 20 years. Premium for policy was Rs.15000 per annum. Sum assured is Rs.100000 each for both principal as well as Spouse Life assured. I had surrender this policy on Sept-15 i.e. after completion of 6 years.I got surrender value as Rs. 104000. 2% TDS was deducted by LIC .
    Now, my question is , does this surrender value is taxable ??

    Please advise me as there is confusion between me and my advisor .
    His opinion is that the amount is taxable. and hence will be added in income under other sources because of TDS deducted.
    If it will be taxable, then how much should be taxable amount ?
    His opinion is that it will be 20% i.e. about Rs.20000 as income will be in 20% slab.
    If he is correct, then it will be huge loss to me . He asked me to hold to file return till finding the right solution but still not found a solution. Please guide.

    Thanks In advance.

  41. Hi Sir,

    I need your advice for Postal Life Insurance (PLI) Endowment Policy. Below are the details:

    Plan : Santosh

    Sum Assured : 5 Lacs

    Installment Premium : Rs.1375/Monthly (Rs.1401 with Service tax)

    Issue Date : 30/10/2012

    Maturity Date : 30/10/2039

    Last Premium Paid Till : 31/08/2016

    Paid up Value (as per PLI Website) : 72530.86

    Current Surrender Amount (as per PLI Website) : 24515.00

    As per IRDA Guidelines, Guaranteed Surrender Value (for regular premium policies) will be as below.
    A) 30% of premium paid less any survival benefit already paid, if surrendered within 2nd Or 3rd Year.
    B) 50% of premium paid less any survival benefit already paid, if surrendered within 4th To 7th Year……….

    My Payments:

    30/10/2012 to 30/09/2013 >> 1st year
    30/10/2013 to 30/09/2014 >> 2ndt year
    30/10/2014 to 30/09/2015 >> 3rd year
    30/10/2015 to 30/09/2016 >> 4th year

    My query is:

    1) Am I getting 30% or 50% Surrender value.?

    2) If I am getting 30% then is it beneficial to pay 1 or 2 premiums and get back 50% of Surrender value.?

    3) Does PLI comes under or follow IRDA Guidelines?

    My other queries are,

    4) Should I make this “Paid Up” or surrender the policy.?

    5) If I make it paid up, can I claim Tax Benefit under 80C for the premium paid in this FY.?

    6A) If I surrender this policy, do I need to show Surrender Amount received as Income in this FY.? (As per your article, I guess NO)

    6B) And can I claim under 80C for the premiums paid in this FY even if policy is surrendered.?

    6C) *** As I have paid only for 4 years (less than 5 years), does the tax relief granted earlier under 80C will be revoked.? In such case, what do you suggest? Shall I continue the policy for 1 more year and make sure that I don’t have to face tax complications. More over, there will be Bonus after 5 years.

    Sir, kindly answer my queries and suggest me. I am in a complete dilemma.

  42. Hello – I’ve two ULIPs before 2012 . All have crosses their lock in periods and I want to withdraw those investments. The details as below.

    Premium – 12,000 (Yearly), Sum assured – 1,20,000, Current Value is more than invested
    Premium – 30,000(Yearly), Sum assured – 20,00,000, Current Value is more than invested

    Can you please advise what would be my tax amount on above policies and under which head I’ve to claim tax if at all have to pay.

    Thanks in Advance.

    • Dear Atma Prakash
      basis the info you have provided, it appears that your surrender receipts will not be taxable. You should show the receipts under Schedule of Exempt Income.
      Thank you.

  43. I would like to ask a question from you. My question is :- If a person take a LIC (Single Premium) and after some years such person take a loan on such LIC then what should be the tax treatment of amount received by such person.?? It should be called surrender of LIC or anything else??

    • Dear Vishwas

      In my understanding, you are asking about the tax treatment with reference to the loan. LIC is only a security for the loan. It will in no way count as a surrender of the policy.

      Hope this helps.

  44. Dear Sir,

    I took ICICI pru Life time maxima ULIP policy during 2010 and paying 50k yearly premium[7 yrs completed of 10 years].Hope the surrender value is Nil on surrender. Life cover is 250,000.00

    What about the IT on the surrender value as the current fund value is 480,000.00.

    Pls advise.

    Regards,

    Mohan.K

      • Dear Sir,

        Thanks for your info. It is ULIP policy.

        When i tried to confirm the surrender notification online, it says, the surrender value subject to Taxable.

        So i confused and not confirmed the surrender notification.Please advise.

        Regards,

        Mohan.K

        • 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).

          Thanks

  45. I had withdrawn a ICICI Life time super pension plan before the maturity date in March this year. I am an NRI, however a TDS amounting to 31% of the interest I earned was deducted. I have now received the TDS certificate. How do I claim a refund of this TDS please?

    • You will have to file your income tax return, show the amount under income from other sources. Then under taxes already paid, you can show the TDS deducted. If there is a refund due, that will be mentioned in the return and would be transferred to your bank account.

      Regards
      Vipin

  46. Sir,
    I am Govt.Employee. I have done preventive health checkup from THYROCARE Arogyam 1.7 profile for me and my family for Rs.5000-. But this is not included in my Form 16. While e-filing can I include this under sec 80D and claim refund? Also I want to know how to upload this cash receipt given for this health checkup for Income Tax department for verification purpose?
    I have not taken any health insurance policy only I have done preventive health checkup.
    Kindly reply

    • Hello!

      preventive medical health checkup is not allowed under Section 80D. However, you could have claimed it under Deduction from Salary for Medical reimbursement which are allowed upto Rs. 15,000 in a year. You don’t have to upload the receipts but keep them with yourself for verification in case it is asked for.

      Hope this helps.
      Thank you

  47. Sir,
    I invested single premium of Rs 160000/- in Reliance Life Insurane with market linked plan named Automatic Investment plan during 2008. This year 2016 I fore closed and got a Total refund of only Rs 185000/-. the Ins company deducted Rs 1854/- under sec 194DA. My tax slab is 30%. Kindly workout the balance to be paid?

      • Sum assured Rs 2 Lakhs.
        Since I got only Rs 25000/- as returns then how full return of Rs 185000/-will become fully taxable?
        Also why it is not covered under long term capital gain tax?
        Kindly reply.

        • TO make the policy receipts tax free, you sum assured should have been 5 times the premium. This is the rule.
          IN fact, after 2012, the sum assured should be 10 times the premium to get the benefit.

          In your case, you will have to pay tax on the entire Rs. 1.85 lacs. You can show Rs. 1854 as tax already paid and then pay the balance.

          Hope this helps. Thanks.

          • Amount invested Rs 160000/- was already tax paid. again paying tax for Rs 185000/- will become double taxation for the principal investment.
            I refer FINANCE Act , 2003 CIRCULAR NO 7/2003, Dt.5-09-2003 tells as follows.
            http://www.incometaxindia.gov.in/Pages/communications/circulars.aspx

            10.3 The insurance policies with high premium and minimum risk covers are similar to deposits or bonds. With a view to ensure that such insurance policies are treated at par with other investment schemes, amendments have been made in section 88 and clause (10D) of section 10. The existing clause (10D) of section 10 has been substituted so as to provide that the exemption available under the said clause shall not be allowed on any sum received under an insurance policy issued on or after the 1st day of April, 2003, in respect of which the premium payable in any of the years during the term of the policy, exceeds twenty per cent of the actual capital sum assured. In view of this, the income accruing on such policies (not including the premium paid by the assessee) shall become taxable. However, any sum received under such policy on the death of a person shall continue to remain exempt. The new provision also provides that the amounts received under sub-section (3) of section 80DD, shall not be exempt under this clause

          • Unfortunately, that is the case for this policy. The section that you quote says the same thing – sum assured has to be 5x or more of the premium or premium has to be less than or equal to 20% of the sum assured.

          • In view of this, the income accruing on such policies (not including the premium paid by the assessee) shall become taxable.

          • This circular is from 2003. As per Finance Act of 2013, things have changed.
            While logically I would agree with the concept of taxing only income and not premium paid, it doesn’t seem to be the case.
            I would say, if you can fight it all the way through, then go ahead and show only the income and pay tax on that.
            All the best!

  48. Dear Deepesh,
    Ur article is very useful and gives insight to the mistakes done by us in the past.
    I have taken magic plan retire and enjoy at the age of 34. I am paying premium of Rs 53,000 /- p.a. and shall get Rs 3Lacs p.a after 22nd year of policy till the completion of the policy i.e. upto 65 years i.e. @ 10 years.

    Is it worthwhile to pay high premium. Can I make policy paid up ? and invest in more in SIP/Mediclaim/term plan?
    Kindly suggest

    Thnks and regards
    Chetan Mehta

    • Dear Chetan
      Is the 3 lac pa assured?
      What is the worth of 3 lac after 22 years? Just to give you an example, if you spend Rs. 25,000 per month today and inflation is at 8% per year, after 22 years, you will need approximately 1.4 lacs per month for buying the same things.

      You have options to make the policy paid up or surrender it. Please check with your insurance company again.

      Thanks

  49. Sir,
    I am a NRI and had invested in 2007 in BAJAJ NEW UNITGAIN PLUS Policy which is full paid up now and due next year. I have been paying Rs.50000/- for 10 years and have attained a paid up value for little less then 10 lakhs at present. How will the tax be calculated on the same or TDS. I do not file return and I have no other income in India and all my payment were from my NRI account. Appreciate your response.

  50. I am NRI Senior citizen, I have invested in ICICI Prudential Life time pension plan in the year January 2007 and 3 yearly premium paid, i have surrender this policy in March 2016. insurance co has deducted 31% TDS on excess amount recd. on investment. can this surrender value is taxable ?, if yes so how much amount is taxable? whole amount is taxable of only the gain is taxable ?
    Pl advise me

  51. Dear Mr. Vipin,
    I have surrendered my ULIP based pension plan (Bajaj Allianz New Unit Gain easy Pesion plus ) in 2015 before maturity due to certain financial problems and received about 3 Lakh plus ( after deduction of 2% TDS).I have started investing in this policy from 2007.
    I am an income tax payer in 30% bracket.
    Please guide me about my tax liability of amount obtained.

    Somebody has guided me that I have to pay income tax on 2/3 rd amount of the total amount received. If so please inform me about the section under which this can be done.
    Thanks.

    with regards,
    Parwinder

    • That’s right. Dr Kaur. You will have to pay tax on 2/3rd amount as per your tax bracket. Most likely, you would show it as income from other sources.
      Do confirm with your tax accountant. Thanks.

  52. Hello sir,
    My daddy surrender lic future plus policy , he hold it for 7 years but premium was paid for first 3 years so now is this surrender amount taxable?

  53. My wife took one Endowment plus LICI policy on single premium of Rs 1,00,000 on 30-10-2010 for 10 years. maturity date was 30-10-2020.. But due to some reason it was surrendered on October 2015. LICI has paid Rs 153146.00 on Oct 2015 with a deduction 2% I. tax amounting 3127.00. Since the policy was more than 3 yrs old, whether deduction of 2% IT is justified. If it is justified whether Rs 153146 will have to be shown as Income from other source. pl reply

    • Dear Mr. Deb

      In my opinion, the TDS is not a tax. It stands for Tax Deducted at Source. Something similar to the TDS deducted from salary. It is only a compliance aspect that LIC is doing. You can file the IT return and show the TDS as tax paid. If there is excess tax based on her income, she will get a refund.
      The amount receive by her should be shown under Schedule EI – Exempt Income of IT Return form.

      hope this helps.

  54. Hi, sir,
    I have an insurance policy from ICICI Life stage pension advantage for last 7 years and have paid premium regularly. The maturity period is 10 years.
    I wish to withdraw the entire amount now. I request you guidance on whether I will be required pay any tax on withdrawal ?

    • Dear Mr. Garg
      For Pension Plans, this is how the taxation works in my understanding. You can receive 1/3 of the accumulated value tax free & buy annuity with the the balance 2/3 of the amount. The annuity becomes part of your year on year income and gets taxed accordingly.

      You also have a choice to receive the remaining 2/3 too as lumpsum by paying tax now as per your tax bracket and then invest it further as you like.

      Hope this helps.

  55. Dear Sir,

    My Mother( senior Citizen) has purchased LIC’s Single Premium Money Back policy in June 2012 Rs. 400,000 and Surrendered the same in Aug 2015 , (More than 3 years)

    Surrendered value we received is only 84% of single premium which was paid initially + some additional payout , the total amount we received after surrender is only Rs 434000 , only 34000 more than Single premium which we paid ,

    My Query is does Total surrender value 434000 is taxable because its already has 400,000 component on which tax is already paid

    or only 34,000 which is an additional earning ? kindly advise

  56. Dear Sir,

    I had taken Birla Whole life ULIP on 2002 and the annual premium was 32000 and I was paying the premium till date, due to some financial need I’m planning to surrender the same .The current fund value was 6,40,000. I’m in my 30% tax bracket, pls share me the tax implications.

    Thanks in Advance

    • Dear Balaji
      I am not really sure which policy you are referring to. IF it is a whole life, it is likely an endowment policy and there could be surrender charges applicable.
      If it is a ULIP, there will be not surrender charges.

      In either case, there will be not tax applicable to you.

      You should confirm with the insurance company.

      Hope this helps.
      Thanks.

  58. I BOUGHT A SINGLE PREMIUM POLICY,ICICI PRU LIFE LINK WEALTH SP ON 20 OCT2010 BY PAYING A SINGLE PREMIUM OF RS 199000/-.I SURRENDERED THE POLICY AFTER 5 YEARS AND RECEIVED A SUM OF RS248353/- AFTER DEDUCTION OF TDS @2%

    KINDLY ADVICE DO I HAVE TO INCLUDE ENTIRE SURRENDER VALUE TOWARDS MY INCOME FOR THE FY 15-16?

  59. Dear sir
    i have purchased a hdfc pension plan and paid 1 lakh annually upto 7 years on surrender this this policy i got 870250 kindly guide me for the tax calculaton of same.

  60. Dear Sir,
    First of all, thank you for your service to people like us who are in need of good advice that we don’t get from insurance companies.
    I have signed up for ‘ICICI Prudential LifeStage Pension Advantage’ plan six years ago and it will end in 2020. I paid premiums in first 3 years of 4 lacs each. Now the account value is 16 lacs (with 4 lac capital gain). I wish to surrender but concerned about tax implications. I am NRI from USA and I was told there will be TDS of 31% though the source of funds was NRE account. Is this correct?
    Also will the tax be on total surrender value of 16lacs or on the capital gain of 4 lacs?
    Please advise.

    Thanks,
    Vijay

    • Dear Vijay, thanks for reading. With pension plans, it works differently. 2/3rd of the receipt has to be converted into annuity. Rest is tax free.
      Since you are not paying any more premium, you might consider witjdrawing only in 2020. Just ensure that the fund in your policy is one which invests max in equity.
      Hope this helps.

      • Sir,
        If I surrender now before maturity, will I be paying tax on total surrender amount or just the capital gains?

    • Hi,

      I have invested in ICICI Life stage pension plan – premium Rs.50000 in August 2009 for 4 years and discontinued after paying first 4 premiums. And all of this in 100% equity. Can you suggest the tax implication if it is surrendered after 8 years. Whether it would be on capital gains or the entire surrender value

      Regards

      • Hi Ajit

        The tax is on the entire value.
        For Pension Plans, this is how the taxation is in my understanding. You can receive 1/3 of the accumulated value tax free & buy annuity with the the balance 2/3 of the amount. The annuity becomes part of your year on year income and gets taxed accordingly.

        You also have a choice to receive the remaining 2/3 too as lumpsum by paying tax now as per your tax bracket and then invest it further as you like.

        Hope this helps.

  61. Dear Vipin, Thanks a lot. Really appreciate your quick advise.

    As the pension policy was surrendered before maturity, the insurance company was suggesting entire amount be invested in a EEE based policy such as Maximizer IV or a Balancer fund over a period of 5 years. Please advise.

    Also please help all readers understand on basics of NPS.

    Thank you,
    Siddartt

  62. I purchased a ULIP plan with premium 9,723 per annum in March 2007. Policy tenure was 10 years. Sum Assured was 49000. I paid premium till 2014 and surrendered in April 2015. I got total 109000(approx).
    Total Premium paid 9,723*7 years = 68061
    I need to know whether the gain =(109000-68061)=40939 is taxable or not.

    Please advise.
    Thanks

  63. Have recently surrendered a Life Time Super Pension from ICICI Prudential as the policy performed poorly.
    Had taken the policy in 2006 and paid premium for 9 years.
    Am told that premium paid is to made to annuity and balance gain is long term capital gains.

    Please advise on next investment steps to avoid taxation legally. Thanks

    • Siddharth, 1/3rd of the amount that you have received is tax-free. For the remaining 2/3rds you either pay tax or convert it into an annuity with the same insurance company. This will defer the payments into monthly instalments and you can count it as a part of your annual income and pay tax accordingly. There is no way to avoid tax.

  64. Hi Vipin,
    If I close the policy now, I will get 3.53 Lacs. I have paid premiums(39376*10) equalling 3.93lacs till date.

        • Dear Ravi,
          The 7.4 lacs after 10 years will be tax free as per current tax laws.

          Consider this, if you take out Rs. 3.53 lacs today and put it in an investment that pays 8% average return every year, you will have less than 7.4 lacs after 10 years.

          Alternatively, since 10 years is a good time for equities to work, if you invest 3.53 lacs into stocks via equity mutual funds, it is likely that you may earn a better inflation beating return from your investment. As per current laws, this is also tax-free.

          You should decide how would you further invest the money before taking the money out. If equity is not your choice, then let the money remain in the policy.

          Hope this helps.

  65. Hi Vipin.

    I have Jeevan Tarang Policy. I have been paying for the last 10 yrs. Term is for 20 yrs. I would like to discontinue the policy. Currently, the acquired value for the policy is around 7.4 lacs including bonus. Is it a good call to make it paid up and wait till the end of the maturity to get the entire amount of 7+lacs? Annual premium is 39376. Please advise.

  66. Hi..i hv a jeevan saral plan which started in oct 2010 for 1021 monthly. I wntd to terminate the plan in oct .kindly confirm how much will i get..will it b jst the total amt i hv invested so far or any amt addition to this..

    Thnks

    • Dear Naina, Thanks for writing. I would suggest that you talk to your insurance company and find out what is the current surrender value of your policy. That would give you a better idea. Thanks.

  67. Hi,

    I had 4 LIC Jeevan Mitra Triple Endowment policies which were issued in Jan 2009. The policies were for a sum assured of 4 Lacs each with an annual premium of 16303 INR each.
    I always paid the premium on time till 2014 and surrendered these policies in June 2015 with a total surrender value of approx 2 L.
    The surrender value which I received, is it tax exempted or not?

    Thanks

  68. Hi Sir,

    I hold a LIC 20 yr Money back plan, for which i am paying a quarterly premium of Rs.16,145 for SA of 10L. I have paid the premiums for the last 3 years. so total premium paid is close to 193740. and for 80C tax exemption, i have utilized the same amount. This policy is having money back of 2 lakhs every 5 year.

    Now that i want to close the policy, LIC is saying a guaranteed surrender value of 91,266. but i have read from your post that <5 yrs will attract tax reversal. so can you let me know what would be the wiser choice

    1) Come out of the policy now by taking surrender value minus tax reversal
    2) stay invested for 2 more years to make it 5 yrs, get the first money back of 2 lacks and then surrender the policy with the eligible surrender value if any(not sure of surrender value after money back)

    Regards
    George

    • George, Thanks for writing. I guess you should wait for another 2 years. IN the meanwhile, just check with LIC, that if you do not want to pay further premiums what will be the implication. Can you make the policy paid up, that is, any expenses henceforth should be charged from the policy balance?
      If that is possible, then after completion of 5 years, you can surrender the policy. But check this out though. Thanks.

      • Thanks a lot for the reply. I shall contact LIC to know the implication of not paying the further premiums for next 2 years and then surrendering it. But even if I dont pay premium for next 2 years and just stay invested for 5 years, i can avoid the tax reversal?

        • Yes, I believe so, since you will stay invested for 5 years. You will not be able to claim any more sec 80C benefit since you will not pay any new premium.
          IN any case, do check and confirm with LIC? The answers amy not come by easily so you might have to persist.
          Thanks.

          • I am a little confused. As per the executive, there are no reversal since this is a traditional policy and have completed 2 years. Also read the below comments in maxlife website and similar comments in few other websites.

            “For insurance policies issued on or after April 01 2012, deduction is allowed for only so much of the premium payable as does not exceed 10% of the actual capital sum assured.(15% of actual capital sum assured in case of person with severe disability or specified ailment)

            Above benefits shall be reversed if the policy is terminated/cease to be in force within 2 years for traditional products and 5 years for ULIP products after the date of commencement of policy”

            http://www.maxlifeinsurance.com/insurance-explained/tax-benefits.aspx

          • What you have read is for the claiming the tax benefit under Section 80C. For traditional policies, you have to pay premiums for at least 2 years and 5 years for ULIPs, that is the minimum condition.

            I am not sure what was the conversation between LIC and you. But the key thing to ask is whether you can discontinue paying the premium and let it be with LIC for 5 years and then take the money. Another question, from which year would you get 100% of the policy value as surrender value.

            Thanks

          • Thanks for clarifying .

            I spoke to the customer care of LIC and they are totally ignorant about the tax reversal. spoke to 2 different executives and both of them updated me that there is no tax reversal. dont understand why they are conveying wrong message. may be is it because while filing , we need to manually add these premiums in ‘Other Income’ category and file ITR and no one care to do that?. I am not sure about the process

            got the below response for the questions.
            1) Can I stop paying premium and stay invested for 5 years and surrender?
            Yes. You can stop payment so that the policy will be converted to paid up after 6 months and can be surrendered at any later point, Surrender value will be almost same as whats told now.

            2) When will i get 100% policy value as surrender value?
            If you make this policy paid up, then at the end of 20 Yrs, you will be getting the total premium paid so far(16145*4*3) + total bonus till date(78000) which together comes around 2.3 lakhs.

          • George, I don’t think the second question has been answered properly – When will you get 100% of the policy value as surrender value? Or does that happen only on maturity?

            I know this is turning out to be lot of hassle. But you might just be better off visiting an LIC branch and finding it out.

            Thanks.

  69. Dear Sir,

    I have taken HDFC Pension Plus policy in Aug-2007 and till today I have completed more than 8.5 years. Maturity is at 15 years. The option chosen was Growth with 100% equity exposure. Till today I have not claimed any Income Tax benefit under Section 80 C for the premium paid . However the premium amount was part of my taxable income … hence tax is already paid on the that on regular basis.
    If I surrender the policy today then would like to know if
    1) Entire surrender value would be taxable or
    2) Only gains would be taxable
    3) Also if I stop paying premium now and surrender the policy after say 1 year then would I even get tax benefit on gains as well as the option chosen is 100% equity?

    • Dear Suren,
      Thanks for asking. I would recommend that you read the following article on pension plans to get a better understanding.
      https://vipinkhandelwal.com/pension-plans-wolf-in-sheeps-clothing/

      IN summary, it is not about the gains only but the entire amount that you will receive on surrender. if you surrender the policy, you will have to convert 2/3rd of the amount into an annuity which will be part of your taxable income. Its mandatory.

      The 1/3rd amount can be received as tax-free.

      Hope this helps.

  70. Sir,
    I have surrendered my Max Life insurance policy in 6th year. Now pl. tell me in ITR-2 where the surrender amount is to be disclosed ? as per y knowledge it is exumted from tax

  71. I had taken two Icici prudential Life stage Pension policies.
    It had already completed 7yrs.
    Maturity is at 10yrs.
    Is it compulsory to take 2/3 part as pension.
    Is their any provison of claiming complete 100% maturity in lump sum.
    Its tax implications are what?
    Plz solve my query.

Comments are closed.