My father died a few months ago, and the policy proceeds came to me worth Rs 40 lakh. Will I need to pay tax on this sum that has now come into my account?
If the maturity of your policy is not exempted under Section 10(10D), then the amount will be subject to a TDS
My father died a few months ago, and the policy proceeds came to me worth Rs 40 lakh. Will I need to pay tax on this sum that has now come into my account?
Prasad Rao, Udipi
Unfortunate to hear about your father’s demise, but you need not worry about the insurance proceeds being credited to your account. Under the section of the Income-tax Act 1961, any proceeds received under a life insurance policy, including the sum allocated by way of bonus on such policy is exempt from tax. However, there are few exemptions to this rule that vary from policy to policy which is listed below to be eligible for the exemption under this section.
Case -1: If an insurance policy is taken after 31st April 2012
If it is a traditional policy, the premium per year of the policy should be lesser than 10 per cent of the sum assured. If it is a ULIP, the sum assured should be a minimum of 10 times of the premium paid per year. And, in case of a pension plan, 1/3rd of the maturity amount can be withdrawn as a tax free lump sum. The balance of the maturity amount has to be purchased as annuity from the insurance company.
Case -2: If an insurance policy is taken before 31st April 2012
If it is a traditional policy, the premium per year of the policy should be lesser than 20 per cent of the sum assured. If it is a ULIP, the sum assured should be a minimum of 5 times of the premium paid per year. And, in case of a pension plan, 1/3rd of the maturity amount can be taken out as a tax-free lump sum. The remaining of the maturity amount has to be purchased as an annuity from the insurance company.
If the maturity of your policy is not exempted under Section 10(10D), then the amount you receive from such a policy is subject to a TDS (Tax deducted at source).