This has nothing to do with LIC. It has to do with the fact that LIC New Bima Bachat is a single premium plan.
Review: Salient Features of LIC New Bima Bachat
LIC New Bima Bachat is a participating traditional life insurance plan. It is a single premium plan.
Policy Term: 9, 12 and 15 years
No limit on Maximum Sum Assured.
Survival Benefit
For policy term 9 years: 15% of the Sum Assured at the end of each of 3rd & 6th policy year
For policy term 12 years: 15% of the Sum Assured at the end of each of 3rd, 6th & 9th policy year
For policy term 15 years: 15% of the Sum Assured at the end of each of 3rd, 6th, 9th & 12th policy year
Maturity Benefit
Payment of Single Premium (excluding taxes) along with loyalty additions
Death Benefit
In the event of death within 5 years, the nominee gets Sum Assured.
In the event of death after 5 years, the nominee gets Sum Assured along with Loyalty Addtions
What about returns from LIC New Bima Bachat?
Since LIC New Bima Bachat is a investment and insurance combo product, returns are important.
Moreover, since the plan is a participating plan, you can get a reasonable estimate of returns using certain assumptions. Not as crisp as non-participating plans.
This time, I will save the homework and leave it to you.
However, you can expect returns to be low as with other traditional life insurance plans.
I want to discuss another important aspect i.e. about taxation of benefits from this plan.
Do you purchase life insurance to save taxes?
Most of us purchase life insurance plans to save on income tax under Section 80C. However, unfortunate that may sound, it is a reality.
Another understanding is that the any benefit (maturity/death) received from the life insurance company is exempt from income tax.
What does the Income Tax Act say?
Not completely true.
Under Section 10(10D) of the Income Tax Act, it is clearly specified that
If the annual premium of a life insurance plan exceeds 10% of the Sum Assured, the proceeds from such life insurance plan are not exempt from tax.
Even for the tax benefit for payment of annual premium under Section 80C, you get tax benefit only to the extent of Actual Premium Paid or 10% of Sum Assured, whichever is lower.
There is minor exception in case of differently-abled persons or those suffering from specified ailments.
Suppose your life insurance plan has an annual premium of Rs 1.25 lacs and the life cover is Rs 8 lacs. In this case, tax benefit under Section 80C will be capped at Rs 80,000.
Moreover, any proceeds from such life insurance plans are taxable.
Now, there is TDS deducted for such policies. So, there is no way you can fly under the tax radar.
One aspect that I am not sure about is whether you get adjustment for the premium paid before you calculate tax liability. In my opinion, you shouldn’t. However, I have read about adjustment at many places. A good Chartered Accountant can answer this better.
What about Death Benefits?
Do note proceeds from a life insurance policy in the event of death of the policy holder are exempt from income tax irrespective of what is mentioned above.
What do Insurance Companies do?
These rules don’t impact term insurance plans because Sum Assured is typically a much higher multiple of the annual premium.
However, these rules can be a problem with insurance and investment combo products.
The good part is Insurance companies, in most cases, try to ensure that the annual premium is at least 10% of the Sum Assured. IRDA regulations also ensure this to some extent.
However, single premium insurance plans are likely to run into trouble.
Why?
Because you are paying the entire premium upfront for all the years. It is quite likely that the Sum Assured will be a much lower multiple of premium.
What about LIC Bima Bachat?
What do you expect?
LIC New Bima Bachat is a single premium life insurance plan.
The premium for a 30 year old for Sum Assured of Rs 10 lacs for policy term of 15 years is Rs 7.62 lacs. Clearly, the premium is too high for the product to qualify as
Therefore, if you have purchased the plan, be prepared to shell out income tax on any benefits received from the insurance plan.
Were you aware of this when you purchased LIC New Bima Bachat plan?
Quite possible you were never informed. You assumed that the payout will be exempt from income tax.
Any taxes will further bring down already low returns from this traditional plan.
Would you have invested if you knew the maturity proceeds or any other benefits from the insurance plan were taxable?
Perhaps, no.
If you are planning to invest in this product from LIC, do consider this aspect.
32 thoughts on “Benefits from LIC New Bima Bachat Plan are taxable”
Nice article Sir,
Which is the best term insurance plan in India?
REgards
Don’t know myself.
You will get some pointers in the following post.
https://www.personalfinanceplan.in/insurance/which-is-the-best-term-insurance-plan-for-you/
Do the common people know the Taxability of LIC plans?
For most of the people, LIC means benefit u/s 80C, as also receipts are Tax Free.
Is it not going to be a dis service to the common people, if they are not properly guided by those who solicit the Insurance from their customers.
Do the agents very clearly explain the customers about this?.
If there are no advantages u/s 80C, 110(10D), for what reason these Single Premium Policies are being allowed by IRDAI. Almost the entire sum assured is already taken as a Single Premium.
Can some one explain the logic of this Single Premium policy, and WHY SHOULD THE RECEIPTS BE TAXABLE?. Are the policies earning by crossing the roof?
I believe many won’t be aware. Btw, the fault lies not with a particular insurance company but with the single premium plans.
That’s how the tax laws are.
About single premium policies, if we ignore the taxation part, let’s suppose a retired person wants to invest lump sum.
Let’s assume the person cannot look beyond insurance plans. The person may find it difficult to pay regular premium.
With insurance and investment combo plans, a part of the premium (or accumulated corpus) goes to meet mortality charges (provide life cover).
Clearly, if the Sum Assured is very high, bulk of the premium will go to cover mortality charges and less will be left to invest.
That’s why a lower Sum Assured may help in the case.
IRDA regulates insurance. Tax laws are beyond it.
Btw, I am not vouching for Single Premium plans. I am merely pointing out these plans can be useful in some cases (taxation ignored).
SINGLE PREMIUM POLICIES ARE NOT GOOD FOR ANY ONE EXCEPT THE INSURANCE COMPANIES. PEOPLE WHO HAVE SUFFERED SHOULD WRITE TO CBDT, FINANCE MINSTER, PRIME MINISTER. pm HAS SOLVED MANY PROBLEMS. HAVE YOU READ SUCHETA DALAL’S WRITE UP ABOUT MIS SELLING OF LIFE INSURANCE POLICIES?. SOME CASES OF SINLE PREMIUM POLICIES ARE CITED THERE.
DOES SOME ONE IN THE GOVERNMENT EVER READS ALL THESE COMMENTS, OR WE ARE PUTTING OUR BRAIN IN VAIN?.
Dear Sir,
Single premium policies can serve a limited purpose for a few people.
Sucheta Dalal’s and MoneyLife’s issue with these policies is more about mis-selling. Many times, multi-year policies are mis-sold as single premium policies. Or no suitability analysis is done before the sale. or that prospects are not told about taxation of such policies at the time of sale.
They have not really challenged the taxation. It is written in law.
I have covered some of the aspects covered in various Money Life articles.
https://www.personalfinanceplan.in/opinion/bank-rms-fleece-senior-citizens/
Btw, I do not like such policies either.
Respected Sir, While making the Survival-Benefit- payment, LIC has deducted 1% from the S.B.Amount.. Policy holder had already submitted his Pan Card. He has 4 policies. Under 3 policies no tax was deducted whereas under his 4th policy 1% towards Income tax( on total amount of all 4 policies SB Amount) was deducted.
Sir would U be kind enough to let me know under what section of Income Tax Act this amount is deducted.
For ur kind information, this plan is Single Premium Bima Bachat from LIC of India & life cover is about 1.25% of Single Prem Amount paid by the Policy Holder..
Sir, Ur early response to my querry will enhance my knowledge.
Thanks a lot. With Regards. S.K.VALECHA
Hi Mr. Valecha,
Please refer to Section 194DA of the Income Tax Act.
Hi Sir,
Unfortunately, Me and My wife took Bima Bachat policies in 2013 and we have got our first money-back pay-out with 1% TDS. We didn’t know that these pay-outs will be taxable income. We paid remaining tax.
I have two questions. Kindly clarify.
(1) Is regular money-back pay-outs are taxable income
(2) At the time policy maturity, LIC will be paying Single Premium (we have paid initially) plus Loyalty bonus. LIC officer says this complete amount is taxable. How they can treat ‘Single Premium paid’ also taxable? It is like taxing on Principle amount. Pls clarify whether this full amt is taxable or only loyalty bonus.
Thanks in advance
Dear Sir,
That is a problem.
I understand your concern. You should get adjustment for the premium paid.
And there are many who argue that tax provisions allow for such adjustment.
To be honest, I do not have a conclusive answer myself.
My understanding (based on my limited knowledge of income tax act) is that the entire amount is taxable (you don’t get any adjustment for the premium paid). But, I would love to be wrong on this matter.
Please contact a Chartered Accountant. He will guide you better.
Dear sir, I am senior citizen, due to money back , my adviser suggested me put money in NEW BIMA BACHAT of LIC.. I got Ist installment of money back Rs.3,00,000/-, TDS by LIC is Rs.3000/-.It indicate the remaning tax at the rate applicable in my case ir required to pay at the time of RETURN Filing.
1. Is there mechanism to save the above tax?
2. Any instrument for investment of money received to make it non-taxable?
Kindly suggest me, being a senior citizen iI may be in trouble in tax laibilities.
Regards.
Dear Sir,
Do you have only this income for this financial year or there are other sources of income too?
i have other income about 8 lakh after deduction chapter-vi,
Dear Sir,
The income from the LIC Bima Bachat is taxable. You need to add it to your other income.
However, the debatable aspect is whether the entire amount is taxable or only the (receipt-premiums paid).
Not too sure of this.
Different people have varying opinion in this matter.
Consult the taxation with a good CA.
Sir, I
other income too,around 8 lakh. Rs 3 lakh were paid by LIC under moneyback policy of LIC BIMA BACHAT. Rs 3000 were deducted as TDS during the FY 2017-18.
wHETHER i AM LIABLE TO PAY THE BALANCE TAX AT THE RATE APPLICATION IN MY CASE?
Whether, can I get claim refund/adjustment of the TDS in tax payable.?
?
Dear Sir,
As mentioned in the previous response, please consult a good CA.
You have to pay tax.You will get credit for TDS dedcuted.
Sir, Do you provide consultancy services online? If so pl let me know terms and conditions. Till now, I was filing return myself without consulting any CA or Advocate.
C P SINGH GAUR
VADODARA GUJARAT
Dear Sir,
I do not provide tax consultancy services.
Dear Sir, You are doing noble cause for tax payee thru this, You are knowledgeable ,it is sure as per me. I do not know about your business/job and ex[experience profile. Certainly, your valuable advise will help to many others like me. If you can do more search about this may help lot .
I know that you might be having many other assignments, but this is a type of charity.
I am retired senior officer from ONGC and living at Baroda. Waiting your response thru e-mail.
Thank you sir!!!
I have removed your mobile number from the comment to prevent misuse.
Me surrenderd two bimabachat policies in April 2017 ,,,got approx 888000,,in total
Form 26 as depicts ,,,8800 as TDs .Out of 888000,,,about 8lakhs is single premium paid by me,,,
,,Pl tell ..Whether entire amount is taxable ,,or,,only 88000 loyalty or bonus amount is taxable???
I used to fill form 1 itr as me pensioner ..
If I fill form 1 ,,,how much amount should I show in ,,income from other sources??888000 or 88000? Pl guide
Dear Mr. Jha,
There is a difference of opinion in this matter.
Some say the entire amount is taxable (which seems quite unfair).
While other say that only the difference (receipt-premium paid) is taxable.
Please contact a good CA in this matter.
I paid total tax on bima bachat amt received and my asst. Also done they passed order now I can file again and ask for my tax amt refund.
I am not sure if I got your question right. Can you please elaborate?
I am a Bhima bachata holder now in USA at my Daughter’s place as visitor and shall be home in May 2018..
I understand that I need to link my policy with Aadhar before 31 st March 2018.
Can you suggest if I may link using internet.
Can you please suggest any web site which is helpful other that licindia,which I tried ?
Thanks for your time.
Right. You can do this online.
https://www.personalfinanceplan.in/financial-planning/link-aadhaar-lic-policy/
However, you may get OTP on your India number. Unless you can access that, it won’t be possible to link it online.
Btw, you can link once you are back in May.
I represented via modi app ,,,about surrender value of beema bachat,,.Tax liability,,and I received prompt reply from grievance cell of lic delhi,,,that
Entire surrender value is not taxable ,,but
Only ,,total gain minus premium paid is taxable,, if bermabacchat holders want that letter ,,i can sent them via what’s app,,
Thank you for sharing your interaction.
Appreciate that you took an innovative route to get us this answer.
Yes, there is a school of thought which mentions which mentions that only the gain will be taxed.
Believe your interaction provides greater clarity.
Thanks again. (I will have to remove your Whatsapp number from this public forum).
Hi Dr Jha,
Can you please send this letter to me via email at . Really appreciate it.
Ram
Hi Ram,
I will have to remove your email id.
Of late, I have come around to the opinion that only the difference between the maturity amount and premium paid will be taxable.
Licrameshkumar.kumar30@gmail.com
18-Jan.-2022
Dear Shri. Deepesh Raghaw<
This has reference to Dr. Sudhir kumar Jha message of July 1, 2018 at 11:01 pm stating that represented via the Modi app. about the surrender value of LIC's Bima Bachat tax liability on the maturity value and that he received a prompt reply from the grievance cell of LIC, Delhi that the entire maturity value is not taxable but only the total receipts minus the premium paid is taxable,
He offered to share it with other LIC's Bima Bachat beneficiaries via WhatsApp but I understand that your website policy does not allow posting of phone numbers.
Would you share his email id, please?
Best regards,
Justin Pinto.