Section 80C provides that an assessee, being an Individual or HUF shall be allowed a deduction from gross total income of an amount not exceeding Rs. 1,50,000/- in respect of amount paid or deposited in the previous year in the specified savings listed in section 80C(2) of the Act. One of amount for which a policy holder is entitled for deduction is amount deposited to effect or to keep in force an insurance on the life of the policy holder. However, as per section 80C(3A) only premium paid on insurance policy which is not in excess of 10% of the actual capital sum assured, is allowable for deduction.
||Mr. X has purchased single premium money back plan of LIC; called New Bima Bachat Policy. Sum assured is Rs. 7,00,000/-. He has paid a single premium of Rs. 5,59,843/-. He will be getting Rs. 1,05,000/- as survival bonus after every three years from LIC during the span of 15 years and there after the sum assured with Bonus on maturity.
The survival bonus and sum assured with bonus, receivable during the life time of Mr. X, is taxable in his hands as there is no exemption available as per the provisions of section 10 (10D) of the Income tax Act. There will be TDS also on this amount. Mr. X has not claimed deduction under section 80C on this premium paid, which in any case would have been Rs. 70,000/- only.
In this connection, the following questions arise:
1. Is there any specific provision under the Income tax Act by which this amount is taxed under the head “Income from other sources”?
2. Is it possible to show the income under head Capital Gain?
3. Is there any provision to claim the investment made in the policy as cost against the survival benefits?
4. If yes then how the same is to be claimed i.e. can one claim the cost by dividing it against the survival benefit receivable after every three years and then pay tax on entire amount received on maturity.
5. If the investment made is not allowed to be deducted from the survival amount receivable, will it not be unconstitutional as this will amount to taxing gross receipt and not income.
|| Click here to read the full answer of the expert
||CA. H. N. Motiwalla
||10(10D), 56, 80C(2), 80C(3A)
||capital gains, exemption, income from other sources, LIC, tax deducted at source, taxability
From the facts, it is clear that Mr. X has taken money back insurance policy called as New Bima Bachat Policy. As per the terms of the said policy, it is a single premium payment policy, where sum assured will be paid back to the policy holder in the form of survival benefit periodically.