Taxation rules may look complicated for an average common man who is not very familiar with its rules and procedures. Also, many people have a misconception that whatever amount you receive under any heads are taxable. Many would have raised a doubt that if the monthly income, profits, capital gains, gifts etc are all taxable, whether the claim settlement of life insurance receiving to the beneficiary is taxable? Or in other words, if the insured is expired and as per the proceedings, when the beneficiary / nominee receives the claim amount, will that come under the tax swords? Let us see here the taxation rules for insurance proceeds in India.
Tax Norms on Insurance Proceeds
As per Indian tax rules if someone receive any money out of claim proceeds of life insurance as a beneficiary, and if it is received after the death of the insured, it is not considered as an income and is not taxable. Section 10 (10D) of Income Tax Act specifies that maturity benefits from endowment plans, term plans, money back plans and withdrawals from ULIPs are tax-free. However, there are certain conditions applicable.
Any interest or bonus amount one receives apart from the sum insured is taxable under certain conditions and has to be reported as income, for filing income tax. Insurance proceeds will be taxable if in any case the policy has been transferred from the original owner to any others for any valuable considerations like money. However, gifting the policy is excluded from this.
If the maturity proceeds are paid to the insured itself if he is alive, then also, he is free from paying tax to against the amount received. This is applicable in case of pension plans as well. If someone is taking a pension plan, he can withdraw up to one-third of the total maturity amount as cash, which is also tax-free. But separate tax codes are applicable for pension plans. The annuity received from pension plans are not tax-free for both the insured as well as the nominee, as it is considered as the income from other sources. If the insured surrenders the annuity plan before its maturity, only the surrender value is taxable for the insured or the nominee.
Considering all these facts above, life insurance is a great tax saving instrument as well. The premium paid for insurance policies is also eligible for tax deduction under Section 80C of the Income Tax Act. Considering the tax benefits of insurance policies unlike other investments like real estate, one can plan this as an excellent investment vehicle benefitting for both himself as well as for his family, apart from the security it offers to your family in case of any unforeseen mishaps.
However, all insurance policies are not tax free policies. You have to check this fact before taking any insurance policy. It is good to consult the insurance advisor regarding all taxation rules applicable to the chosen policies before you zero down to few options.
Tax Norms on Insurance Proceeds
As per Indian tax rules if someone receive any money out of claim proceeds of life insurance as a beneficiary, and if it is received after the death of the insured, it is not considered as an income and is not taxable. Section 10 (10D) of Income Tax Act specifies that maturity benefits from endowment plans, term plans, money back plans and withdrawals from ULIPs are tax-free. However, there are certain conditions applicable.
Any interest or bonus amount one receives apart from the sum insured is taxable under certain conditions and has to be reported as income, for filing income tax. Insurance proceeds will be taxable if in any case the policy has been transferred from the original owner to any others for any valuable considerations like money. However, gifting the policy is excluded from this.
If the maturity proceeds are paid to the insured itself if he is alive, then also, he is free from paying tax to against the amount received. This is applicable in case of pension plans as well. If someone is taking a pension plan, he can withdraw up to one-third of the total maturity amount as cash, which is also tax-free. But separate tax codes are applicable for pension plans. The annuity received from pension plans are not tax-free for both the insured as well as the nominee, as it is considered as the income from other sources. If the insured surrenders the annuity plan before its maturity, only the surrender value is taxable for the insured or the nominee.
Considering all these facts above, life insurance is a great tax saving instrument as well. The premium paid for insurance policies is also eligible for tax deduction under Section 80C of the Income Tax Act. Considering the tax benefits of insurance policies unlike other investments like real estate, one can plan this as an excellent investment vehicle benefitting for both himself as well as for his family, apart from the security it offers to your family in case of any unforeseen mishaps.
However, all insurance policies are not tax free policies. You have to check this fact before taking any insurance policy. It is good to consult the insurance advisor regarding all taxation rules applicable to the chosen policies before you zero down to few options.