Tuesday, December 5, 2017

Life Insurance policies and Income Tax


Deduction under section 80C for Premium payments – If you have paid an insurance premium to insure your own life or the life of your spouse or your child, such premium payments are eligible for deduction under section 80C. Your child may be dependent or independent, minor or major, married or unmarried, deduction under section 80C shall be allowed. However, to claim deduction under section 80C the premium paid should not exceed 10% of the sum assured where the policy has been issued after 1st April 2013. Sum assured simply means the minimum amount assured under the policy to the survivor. This amount does not include premium which has been agreed to be returned or any payment of bonus on the policy.
Exemption under section 10(10D) on Maturity amount received –When the premium paid on the policy does not exceed 10% of the sum assured – any amount received on maturity of a life insurance policy or amount received as bonus is fully exempt from Income Tax.
Taxation where the premium paid is more than 10% of the sum assured – Any money received from a life insurance policy, where the premium is more than 10% of the sum assured is fully taxable. This income is added under the head ‘income from other sources’ and taxed at slab rates applicable to you.
Starting October 2014, if the amount received is more than Rs 1,00,000, TDS @ 2% shall be deducted by the insurer before making this payment. TDS will also be deducted on bonus payments. If the amount received is less than Rs 1,00,000 no TDS shall be deducted but the amount received shall be fully taxable for you. You can claim credit for the TDS deducted in your Income Tax Return.
Hope this helps you understand tax aspects related to your insurance policy, 

LIC POLICY Assignment

Assignment means a complete transfer of the ownership of the policy to some other person. Usually assignment is done for the purpose of raising a loan from a bank or a financial institution.


Assignment is governed by Section 38 of the Insurance Act 1938 in India. 

Assignment can also be done in favour of a close relative when the policyholder wishes to give a gift to that relative. Such an assignment is done for “natural love and affection”. An example, a policyholder may assign his policy to his sister who is handicapped.


A policyholder who has policy on his own life can assign the policy to another person. However, a person to whom a policy has been assigned can reassign the policy to the policyholder or assign it to any other person. A nominee cannot make an assignment of the policy. Similarly, an assignee cannot make a nomination on the policy which is assigned to him.

When a policyholder assign a policy, he loses all control on the policy. It is no longer his property. It is now the assignee’s property whether the policyholder is alive or dead, the assignee alone will get the policy money from the insurance company.
If the assignee dies, then his (assignee’s) legal heirs will be entitled to the policy money.
An assignment cannot be changed or cancelled. The assignee can of course, reassign the policy to the policyholder who assigned it to him. He can also assign the policy to any other person because it is now his property. We can think of a bank reassigning the policy to the policyholder when their loan is repaid.

LIC NOMINATION

      Nomination is a right given to the life insurance policyholder to appoint a person or persons to receive the benefit under the policy in case it becomes a death claim. 
      Assume if a person who is insured dies, the nominee is entitled to receive the policy proceeds subject to certain conditions