Life insurance: No tax on survival benefit

SC Vasudeva

Q. I am a senior citizen and Punjab Government pensioner (aged 81 years). I got a life insurance policy for my son (aged 45 years) in 2013 with annual premium of Rs 50,000 for 10 years, with maturity value of Rs 38,000 payable in three instalments at 4, 7 and 10 years as survival benefits. Out of my taxable income of Rs 62,500, I paid 20% income tax and invested Rs 50,000 as annual premium. Return per instalment at the end of 3 years is Rs 38,000 (24% less). On this amount, shall I have to pay income tax @20% or 30%? So the net return will be Rs 31,400 or Rs 28,600. How can I save income tax on the return? — Nirmal Singh Aneja

A. The amount received as survival benefit in respect of life insurance policy is not taxable in accordance with the provisions of Section 10(10D) of the Income-tax Act, 1961 (The Act)  provided the premium payable does not exceed 10% of the actual sum assured.  You have not indicated the amount of sum assured in the query. However, in case the amount of premium of Rs 50,000 p.a. does not exceed 10% of the sum assured, the amount received under money back policy would not be taxable.

Q. I have a health insurance family floater policy. Can my wife claim income tax benefit for this premium paid? — RK Goyal

A. An individual assessee is allowed deduction against his total income for an amount not exceeding Rs 25,000 paid to effect or keep in force a insurance on the health of the assessee or his family. In case of a senior citizen and a very senior citizen the allowable deduction is Rs 30,000 instead of Rs 25,000. The amount of premium paid for health insurance family floater policy taken by you would be considered for the purposes of deduction against your total income provided the policy has been taken for the coverage of the health of the assessee or his family. The amount of deduction is allowable to a person who has actually paid the premium. It cannot be claimed by a person who is a beneficiary under the policy. Therefore, in case the amount towards premium of the health insurance family floater policy has been paid by your wife, she would be entitled to claim deduction against her total income. It may be added that deduction for premium to the extent of amount mentioned hereinabove is allowable provided the payment has been made by a mode other than cash.

Q. With reference to your response regarding capital gain tax (July 17), please clarify that as GST substitutes all taxes now, is capital gain tax still applicable?— Ravi Rana

A. GST is an indirect tax which subsumes excise duty, VAT, central sales tax, entertainment tax, octroi etc; and has no connection with the direct taxes.  Income-tax on capital gain is chargeable being part of the “Income” in accordance with the provisions of the Income-tax Act, 1961 and would continue to be chargeable even after the introduction of GST.