Tax Treatment of Pension Plans from Insurance Companies

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During our working life, we get used to receiving salary credit in our bank accounts. After retirement, this routine can come to an abrupt halt. Many government employees who have been contributing to their Defined Benefit Pension plan can still heave a sigh of relief. For others, they need to figure out a way to stick to the routine.

It is not that you cannot do without regular salary credits to your bank account. It is just that you are used to getting a fixed income at the end of the month and using that income to meet your monthly expenses. You have been doing the same thing over the last 35-40 years. As they say, habits die hard.

This is where pension plans from insurance companies can come in handy.

By purchasing pension plans, you ensure that you continue to receive monthly income even during your retirement.

Do note pension plans from insurance companies are not the only pension schemes around. There are many more. NPS (New pension scheme) is a prime example. In addition, there are defined benefit schemes from many employers. The tax treatment (especially the commuted pension) for various pension plans varies significantly.

In this post, I will focus only on the tax benefits on investment in pension plans from insurance companies and the tax treatment of monthly (periodic) income from such plans.

Read: PFP Primer: Pension Plans from Insurance Companies

How does a pension plan work?

A pension plan can be divided into two phases viz. accumulation and distribution. Under the Accumulation phase, you contribute to your pension corpus during your working years.  Your pension corpus keeps growing over a period of time.

Post-retirement, you enter the distribution phase and receive payment from the pension plan. To receive monthly income, you purchase an annuity plan using full or part of the accumulated pension corpus. In the distribution phase, you do not need to make any further payments to the insurance company.

Though it is not mandatory, the accumulation phase typically goes on till retirement and distribution phase begins after retirement. By the way, nobody stops you from purchasing a pension plan that starts paying you after 5 years while your retirement is still 20 years away. It is your choice.

Additionally, it is not that you must get a monthly income only. Annuity plans allow you to draw quarterly or annual income too.

Tax Benefits on Investment in Pension Plans

Investment in a pension plan from an insurance company is eligible for deduction up to a maximum of Rs 1.5 lacs per financial year under Section 80 CCC of the Income Tax Act.

The tax benefit under Section 80CCC is NOT over and above Section 80C tax benefit of Rs 1.5 lacs per financial year.

Note: As per Section 80CCE of the Income Tax Act, the aggregate amount of tax benefit under Section 80C, Section 80CCC and Section 80CCD (1) is capped at Rs 1.5 lacs per financial year.

Tax Treatment at Maturity of the Pension Plan

As per Section 10(10A) of the Income Tax Act, any payment received in the commutation of pension income (from a pension plan by an insurer) is exempt from tax. Commuted pension means receiving a portion of pension income as lump sum.

IRDA, the insurance regulator, has capped the commutation of pension income to one-third of the accumulated corpus. For instance, if you have accumulated Rs 1 crore in your pension plan from the insurance company, you can receive maximum Rs 33.33 lacs as lumpsum (commuted pension) while the remaining Rs 66.67 lacs shall be used to purchase an annuity plan to receive monthly (or periodic) income.

Rs 33.33 lacs received as lump sum shall be exempt from income tax under Section 10(10A) of the Income Tax Act.

Update: IRDA, in July 2019, increased the commutation of pension income to up to 60% of the accumulated corpus. Earlier, the maximum commuted amount was 1/3rd of the accumulated corpus. As we have discussed before, any commuted amount is exempt from tax as per Section 10(10A)(iii) of the Income Tax Act. This brings the pension plans from insurance companies in line with NPS. NPS allows to withdraw 60% of the accumulated corpus and such withdrawn amount is exempt from tax. As I understand, this will only apply to plans filed and purchased after the new regulations. You need to check the policy wordings to be completely sure.

Therefore, new pension plans may permit you to withdraw up to 60 % of the accumulated funds and that too tax-free.

By the way, there is no compulsion to receive 1/3rd (or 60% as the case may be) of the accumulated corpus as lumpsum. You can even choose to receive the entire corpus as monthly (periodic income).

Annuity income (monthly income) is taxed in the year of receipt at your marginal income tax rate (income tax slab).

Tax Treatment on Surrender of Pension plan

In case you surrender the pension plan, the surrender value will be added to your income for the year and taxed at the marginal income tax rate. This is as per Section 80 CCC of the Income Tax Act.

This is a minor twist with this rule (and you need to check this with your CA). The surrender value will be added to your income and taxed at a marginal rate only if you took the tax benefit under Section 80CCC of the Income Tax Act. So, no relief if you took the tax benefit under Section 80CCC. The entire surrender proceed is taxable.

If you invested but didn’t take the tax benefit under Section 80CCC for any of the years(and subsequently surrendered), you may get some relief. You can deduct the premiums paid from the surrender proceeds to arrive at the taxable portion.

PersonalFinancePlan Take

Every pension product, as pointed out earlier, will have Accumulation and Distribution phases.

The way our money skills get nurtured during our working years, it may make good sense to purchase an annuity plan.  An annuity plan will provide regular income to your family. Moreover, annuity plans, if you purchase the right variant at the right age, can add a lot of value to your retirement portfolio. It can increase income and reduce longevity risk.

However, if you have enough investment discipline, you can do without a full-fledged pension plan from an insurance company i.e. you can accumulate corpus on your own by investing in different mutual funds, PPF, EPF, fixed deposits, etc. At the time of retirement (or a few years after retirement), you can simply purchase an annuity plan from an insurance company that offers you the highest annuity rate.

Pension plans from insurance companies come with many restrictions on withdrawal, exit and purchase of annuity but that’s what you expect a pension plan to do. You can avoid all such restrictions by creating pension corpus on your own by investing in mutual funds, PPF, EPF, bonds, FD etc, effectively bypassing the accumulation stage of pension plans. Subsequently, you can purchase an annuity plan based on your requirements.

Additional Read

Section 10 and Section 80CCC from the Income Tax Act

LIC Jeevan Shanti: An immediate and deferred annuity plan from LIC

Annuity options under NPS

Tax Benefits of NPS and Tax Treatment at Maturity

133 thoughts on “Tax Treatment of Pension Plans from Insurance Companies”

  1. Sir I wanted to know that is the surrender value of LIC JEEVAN SURAKSHA PENSION PLAN taxable?
    I had taken the policy in 2001 and it will get matured in march 2017,and I want to surrender it before maturity.should I surrender or not??

    1. I had also same policy with 9951₹ annual premium paid for 17 years now matured will get 2721₹ monthly pension without commutation which is not bad coming as 9% interest of corpus amount,so in my opinion u should continue it to get guaranteed @9% income,don’t compare it with mutual funds ,in basket all flavour should be there

  2. I had taken a pension plan without life cover in 2004 for 26 years. I was informed recently that my plan on maturity will incur an income tax on maturity at 30% slab. Is this correct. I was not very satisfied with their answer and would like your opinion.

    Thanks.

    1. Hi Ramya,

      The annuity income from the plan will be taxed at your slab rate.
      The commuted amount (up to 1/3rd of accumulated corpus) will be exempt from tax.

      1. My pension plan is maturing and I understand that 1/3 of the maturity amount is tax free and 2/3 is taxable if I don’t opt for a annuity scheme. In such case will the tax be on the whole maturity amount or only the profit after deducting the premiums I have paid.. ?

        1. Does your pension plan allow you to withdraw the entire amount lump sum?
          Typically, it is restricted to 1/3rd.

  3. ANUP KUMAR DATTA

    I had started a New Jeevan Suraksha-1 policy of LIC in the year 2001. The policy had matured on February,2015. I am receiving pension from March,2016. I would like to know whether the interest received against that policy is taxable?

  4. I have surrendered a Life Stage Pension plan with no life cover[from ICICI Pru Life Insurance]. I did not claim any tax rebates on 3 x 1,00,000/- premiums paid. The policy has run for 8 years and months. Please advise about the maturity amount, how it to be treated for filing the ITR.
    Thanks n Brgds

    1. Hi Arun,
      I cannot comment on the maturity amount. Please check with the insurance company.
      As I understand, surrender value will be taxed at your slab rate.

      In your case, you have mentioned that there is no life cover (is this correct?). Additionally, you have not taken any tax benefits under Section 80CCC.
      Quite possible you may get relief for premiums paid under Section 57 i.e. premium paid may be deducted from the surrender value.
      However, I am not very sure about this. Please seek opinion from a good Chartered Accountant.

  5. Dream life pension plan of bharati axa, I have paid 6*12000=72000 premium from 2008 to 2013, haven’t paid further premiums, company terminated policy returning surrender value 126000 deducting 1% TDS, I am in 30% tax slab, what I have to do for filing ITR.

  6. I have some pension policy and life policy with one private life insurance company,the executive said that if i surrender the pension policy it is taxable..but if i take a new policy snd pay renewsl premium of my old life policy as transfer of fund from my pension policy with out taking the surrendet value into my account the pension surrender amount will be tax frer as my new policy and old policy has 10(10d ) benefit..is it true…please advise me as my pension policy going to be vested on tuesday 2nd may 2017

    1. Deepesh Raghaw

      Dear Samyak,
      Can you please provide the name of the insurance company and the insurance plans?
      The executive is lying to you. He just wants to earn commissions.
      This is how these people shamelessly defraud people.
      Taxability of pension plan proceeds (surrender) has nothing to do whether money goes to your bank account or to your new insurance policy.
      Btw, why do you want to surrender the plan if it vests in 2 days?
      Don’t trust these people. Your interest have the least priority for such people. All they care about is commissions
      Suggest you go through the following post.
      https://www.personalfinanceplan.in/opinion/bank-rms-fleece-senior-citizens/

  7. Kirit Kesaria

    Bought a pension plan of Max Life Ins co SIPS in 2010 PPTerm 10 years Pd premium 7 years Now wish to withdraw the accumulated fund (Surrender) The vesting age is still 3 year hereafter n then the Annuity starts No commutation is happening only surrender
    But I wish to surrender now
    What will be the tax implication
    Why Shud the proceeds be taxed

  8. K R Manjunath

    Hello sir, my pension plan from Canara HSBC OBC Life Insurance is matured & the value is Rs. 1,31,338/-. Now I would like to withdraw 1/3rd of the amount i.e. 43,341/-. Post withdrawal of this amount, the balance amount is Rs. 87,997/-. Their is no any other life insurance policy available with one time investment of 87,997/-, Hence request to comfirm whether the withdrawal of Rs. 87,997/- is taxable.

  9. K R Manjunath

    What is the tax percentage if I want to withdraw all the amount from maturity proceedings form the life insurance pension plan

  10. Dear Deepesh,
    I have a Pension plan that will mature in next 2 months.
    If I decide to take the entire amount upon maturity, will I get 1/3 amount as tax free and 2/3 as taxable?
    I have not utilized any tax benefits for the premiums. Will this help in reducing taxes on the 2/3 portion of the total amount?

    Thanks,
    Kumar

    1. Deepesh Raghaw

      1. Yes. Upto 1/3rd will be exempt from tax if you withdraw lumpsum. You will have to purchase an annuity plan with the remaining amount. That annuity income will be taxed in the year of receipt.
      2. Tax treatment of maturity proceeds is independent of whether you claimed tax benefit for investments.

  11. I have purchased pension policy from ICIC Pru in 2005 with paying terms Rs. 1 lac for 10 years. Insurance premium paid for first 4 years @Rs. 1lac p.a.. and as such total premium paid Rs.4 lacs. In 2016 the fund value become Rs.8.46 lacs. Icici made 1/3 rd payment about 2.82 and balance amount converted in to annuity faudn to give yearly income.
    In accopunting entry whether the amount of 2/3d will have to show as appreciation value in the books to reflect the annuity valu and whether the same will be taxable.

    1. Deepesh Raghaw

      Suryakant,
      Annuity income will be taxed in the year of receipt at your marginal income tax rate.
      Why do you need an accounting entry? If you are maintaining a balance sheet, suggest you talk to a CA.

  12. Saripalli Venkata Raman

    Sir,
    1. Received Rs.34,715/- under EPFPEN – that is Employees Provident Fund – Pension (on a monthly basis) for the whole year Rs.34,715/- . Is it taxable and under which head of income. Any deductions available under the Income tax act.

    2. Received Rs.5,102/- LIC Super Annuity Rs.5,102/- yearly, Is it taxable. or not.

    1. Deepesh Raghaw

      1. As I understand, such income will be taxed under Income from other sources.
      You can avail all the deductions available such Section 80C, 80D etc.
      2. Same as (1)

  13. Dear Sir… I redeemed pension champion policy from HDFC Life after paying annual premiums for 5-6 years. As per company rules the policy could be redeemed after 5 years. I wish to know what will be the tax liability upon redemption. This policy didn’t have life cover by the way.

    thanks in advance
    regards

  14. I had taken hdfc unit linked pension plus plan (ULPP) in december 2006 for 10 years. i had regularly paid monthly premium upto september 2014. I had surrendered my policy in May 2016. I had claimed deduction u/s 80C only in assessment years 11-12, 12-13, 13-14, 14-15, 15-16 for the aforesaid premiums instead of section 80ccc. On surrender, I have received in may 2016, a lump sum amount. I would like to know whether the entire amount so received is taxable as “income from other sources”. also what would be the tax treatment of premium amount which was taken as deduction earlier u/s 80c. do i need to treat the amount taken as deduction earlier as income from other sources. kindly reply as soon as possible as i want to file my return.

  15. dear sir,

    I had taken hdfc unit linked pension plus plan (ULPP) in december 2006 for 10 years. i had regularly paid monthly premium upto september 2014. I had surrendered my policy in May 2016. I had claimed deduction u/s 80C only in assessment years 11-12, 12-13, 13-14, 14-15, 15-16 for the aforesaid premiums instead of section 80ccc. On surrender, I have received in may 2016, a lump sum amount. I would like to know whether the entire amount so received is taxable as “income from other sources”. also what would be the tax treatment of premium amount which was taken as deduction earlier u/s 80c. do i need to treat the amount taken as deduction earlier as income from other sources. kindly reply as soon as possible as i want to file my return.

    Regards,
    hardik dave

    1. Deepesh Raghaw

      Dear Hardik,
      My understanding is that the entire amount will be taxed as income from other sources.
      You shouldn’t have surrendered the plan that late.
      No need to do anything about deductions availed in the previous year on account of payment of premium for such plans.

        1. also one more thing to ask whether there will be any tds on surrrender value of ulpp. my 26 as is reflecting nothing with respect to it

          1. Deepesh Raghaw

            If the amount is taxable, there will be TDS.
            Please contact your insurance company. They will guide you on what to do.

  16. I invested in SBI Life – life long pension plus for 5 years in which I invest 2L every year from FY 2011-12 to 2015-16 & received 6000 every month which is taxable & This year policy matured n amount of Rs. 11.8L received so what is the treatment for matured amount??

    1. Deepesh Raghaw

      Hi Yash,
      I checked the plan. This plan has very different features than you specified.
      You shouldn’t have got the entire money back.
      Did you surrender the plan or the plan matured?

  17. I AM CONTRIBUTING ICICI LIFE STAGE PENSION POLICY SINCE JAN 2008 ,IT WILL MATURE IN JAN 2018 .IS IT ADVISABLE TO SURRENDER THIS POLICY BEFORE DUE DATE, SOME PERSONS FROM INS CO,ADVISE TO SURRENDER AND TAKE NEW INS POLICY FROM PROCEEDS,THEY ARE MISLEADING ABOUT TAXABILITY BY SAYING IT IS EXEMPT UNDER SEC 10[10]A AND 10[10]D I AM DOUBTFUL ABOUT EXEMPTION. AS PER MY OPINION ONLY 1/3 RD COMMUTATION IS TAX FREE ON MATURITY. AND ANNUITY INCOME IS TAXABLE. PLEASE CLARIFY ABOUT THIS

    1. How low will these guys st0op?
      Do not pay heed to what they are saying.
      They are simply doing this for commissions.
      Let your plan run full course.
      Better still, seek an e-mail confirmation from these shameless people and escalate to senior management so that strict action can be taken against them.

  18. I had unit linked pension plan taken in 2002 which I surrendered in Aug 2017. What will be the tax implications? Please guide

  19. Hello,

    I have taken HDFC unit linked pension plan in year 2007 and paying the premium on regular basis. My plan will be matured in year 2019 but I have been advised that I should withdraw the pension corpus which has been accumulated and invest in other equity mutual funds via monthly SIP. Is it advisable to surrender the policy before completion of full course and invest elsewhere? Please guide.

    Thanks!!

  20. My ULIP with HDFC life insurance will
    mature in. 12/2017.It was started in 2007.
    Is it advisable to surrender and invest in mutual funds? I understand that return from annuity is around 6% only. But surrender amount is fully taxable?

    1. I am in almost the same boat….
      Just wanted to share with you that you have an option of purchasing annuity from non-HDFC insurance companies as well. LIC Jeevan Akshay is giving slightly better returns @ 6.5%. If you buy online, you get another 1% in some form.
      I have a question from Deepesh.
      Deepesh, HDFC returns the maturity proceeds if you don’t invest in their Annuity Plan (without TDS, if you submit some forms).
      Is it ok if take the moneyin your account and then buy immediate annuity from another Insurer?
      My CA was saying that it gets taxable if it lands into your account.

      1. Sorry, the language got confusing because of Types..Re submitting.
        I am in almost the same boat….
        Just wanted to share with you that you have an option of purchasing annuity from non-HDFC insurance companies as well. LIC Jeevan Akshay is giving slightly better returns @ 6.5%. If you buy online, you get another 1% in some form.
        I have a question from Deepesh.
        Deepesh, HDFC returns the “surrender” proceeds if you don’t invest in their Annuity Plan (without TDS, if you submit some forms). In my case, to the NRE account.
        Is it ok to accept the money in my account and then buy immediate annuity from another Insurer?
        My CA was saying that the surrender/ maturity proceeds get taxable if they land into my account.

      2. Hi Arvind,
        You need to see if that is mentioned in the policy wordings.
        From the plans that I have seen, the annuity plan has to be purchased from the same insurer.
        About the documents, if HDFC agrees, you can do that.
        However, I do see a number of operational issues.
        As I understand, IRDA or the income tax law do not mandate purchase of an annuity plan from the same insurer. The problem is how can HDFC track it.
        If they have a provision, perhaps they can.
        Moreover, do not surrender the plan. My worry is they might be asking you to “surrender” the plan, which is a huge problem from the viewpoint of taxation.
        Trust your CA. Am sure he knows more about taxation than I do.

  21. Having a Jeevan Suraksha (Endowment Funding Policy) from 31/03/2000 for which annuity vests on 28.04.2018. I wish to surrender the policy. what would be the tax implications of same

    1. I have not gone through policy wordings. Therefore, will give a generic comment.
      Don’t think it is a good idea to surrender.
      There are many ifs and buts with taxation of pension plans.
      If it is a pension plan, the entire surrender amount MIGHT be taxable.

  22. Hello !
    I surrendered my Pension Plan and received an amount of Rs.2,44,000/- in June this year.
    This policy was due to mature in December 2017 and my annuity payment was to start in Jan 2018.
    But being in need of money and ignorant of the Income tax implications I implied this surrender.
    However now I have realized the committed error. Can you suggest, (a)any method to avert tax, say by reinvesting this amount in to some other instrument in part or full (b) If not then, how to calculate Income tax towards this amount.

    The annual premium of my plan was Rs.10000/- and tenure of 15 years.

    My current taxable annual Income is Rs.2,50,000/-

    My investment in 80C instruments is @ Rs.75000/-

    Age : 52 Years.

  23. Okay, Thanks for information.
    But what should I do, should the entire proceeds of premature surrender of pension policy be added to my Annual income of FY 2017-18? also how to reverse the section 80 CCC benefits claimed in previous years?

    kindly inform

    Regards,

    Ketan Shah

      1. Hello again!
        In the above case out of 15 years annual premium paid, I have taken deduction only in 6 years u/s 80CCC whereas for the other 9 years the 80C/80CCC deduction could not taken due to the 80C/80CCC ceiling. So should I reduce Rs.90000/- (9x 10000/- premium per year) from the received surrender value, to avoid double taxation ?? Kindly advise

        1. Deepesh Raghaw

          There are many interpretations.
          Some say you can reduce for all 15 years of premium.
          Please seek advice from a Chartered Accountant.

          1. ‘Some say you can reduce for all 15 years of premium’ by this do you mean to say that ‘Some say you can reduce the premium for all 15 years if deduction has not been taken for some of the years due to 80C ceiling?? Kindly confirm. Though I am seeking advice from another source also.

            Thanks
            Ketan Shah

          2. Hi Ketan,
            Sorry, I somehow missed the pension part. I thought you were talking about a life insurance policy.
            Section 80CCC describes such cases:
            (2) Where any amount standing to the credit of the assessee in a fund, referred to in sub-section (1) in respect of which a deduction has been allowed under sub-section (1), together with the interest or bonus accrued or credited to the assessee’s account, if any, is received by the assessee or his nominee—

            (a) on account of the surrender of the annuity plan whether in whole or in part, in any previous year, or

            (b) as pension received from the annuity plan,

            an amount equal to the whole of the amount referred to in clause (a) or clause (b) shall be deemed to be the income of the assessee or his nominee, as the case may be, in that previous year in which such withdrawal is made or, as the case may be, pension is received, and shall accordingly be chargeable to tax as income of that previous year.

            In my opinion, if the deduction has been taken even for a single year, the entire amount becomes taxable.
            A competent CA is the best person to answer this question.

  24. One of my clients had invested Rs. 400000 in July 2010, 300000 in July 2011, 300000 in July 2012 in Bajaj Allianz Retirement Advantage RP Plan n surrendered it in Sept 2014. He received some 1500000 + something. What would have been the tax position. Please note that lock in period at the commencement of policy was 3 years which was subsequently increased to 5 years n my client had surrendered it after 3 years of lock in period. Please guide

    1. Hi Deepak,
      I have not seen the plan. Assume it qualifies for tax benefit under Section 80CCC.
      If the tax benefit was not taken under Section 80CCC for any of the years, the surrender amount may not be taxable.
      Please verify this with a Chartered Accountant too.

    2. Dear Sirs,

      I need your precious help in order to clarify a query related to the below mentioned Policy.

      Policy name : Life Stage Pension

      Organization : ICICI Prudential Life Insurance

      Policy Term : 10 Years

      Age of policy holder (Female) : 69 years

      Yearly Premium : Rs.200000/- (Two Lakh only)

      Date of commencement of the Policy : 20/01/2009

      Due date of last premium : 20/01/2018

      Cover Cessation date : 20/01/2019

      But, voluntarily the Policy is closed on : 12/06/2018

      Amount received on closure : Rs.34, 00,000/-

      Now, what will be the calculation under Income Tax? Kindly let me know the calculation of Income Tax as well as the exemption, if any.

      Your reply is ever precious to me.

      1. Dear Sir,
        A few questions.
        1. Why did you close the policy?
        2. Did you take any tax benefit under Section 80CCC (or 80C) for the premium paid under this plan?
        3. Was any TDS deducted on the payment made to you and how much? You can check form 26AS to find this out.

  25. My pension plan is maturing in feb 2018 need to decide if i want to defer the maturity date. Is there any benefit in doing so except maybe get a better annuity interest rate?
    Also need to understand tax implication on annuity where purchase price is returned to nominee. Will this amount he will receive be taxable ?
    Since amount is quite huge about 1cr .. can you suggest best option to minimize tax implication considering I have no real need foreseen for the annuity amount except to reinvest in some tax free product

    1. Yes, you are delaying the annuity payout. May get higher rate in the future (there is no guarantee for this though). Plus, your principal for purchasing the annuity plan should also grow. When the purchase price is returned, it is not taxable.

  26. Dear sir.
    Icicipru life has returned complete maturity value both 33.33% and 66.66% of my life time pension plan.
    I opted for 33.33% cash back, which I have received. I have so received 66.66% money also as icicipru indicated that this is being returned as per IRDA rules since pension amount is less than 12000 Per annum.
    Please tell me if 66.66% money which is about 1.8 lakhs is taxable or not.

    1. Dear Sir,
      I am not sure if I got your question right.
      I was not aware of such a rule.
      Suggest you talk to a Chartered Accountant.
      I am not sure about taxation. It is possible that the amount is tax-free.

  27. I was having Pru ICICI pension plan for which I paid for 13 years regularly. Last week it got matured ( vested) . I opted 33.33% withdrawal plan in the anticipation that I would get regular pension based on renaming 66.66% corpus.. 4 days back I got email from pru ICICI indicating that my monthly pension which is now worked out is less than 1000 rupees. As per IRDA rule, if it is less than 1000 , the whole corpus should be returned instead of starting pension. Now i got remaining two third amount also, in other words full corpus which was build over 13 years lumpsum.. Here I want to know what is tax treatment on the whole amount? I have not surrendered the policy and it reached to its vested life at its own course.. The amount invested by PruICICI was in Mutual funds. Please guide.

  28. If TDS is not deducted on surrender amount of life insurance ULPPS (6yr/18yr) in 2016, is it still taxable ( U/S 194DA and 10(10d) )?

  29. As as an employer my company has bought a policy who called the cash accumulation plan for the retired employees during the year 2017-18 we are confused about the applicability of which section of Income Tax Act that is 17 part 2 sub Part 5 or 7 will be applicable for granting exemption to the Employees.. One LIC official said it is 17 section part 2 Sub part 5 . Meaning that the entire amount of premium becomes exempt in the hands of the employee and I am not supposed to deduct TDS as employer.

  30. Dear Sir,
    I have invested in ICICI Prudential Lifetime Pension II. Policy started in may 2006. I have paid Rs 30000.00 every year for 10 years.(total 300000.00).As the market value was low in May 2012, i got the policy vested for two years. Now I can take the money on 24 May 2018.
    What will be my income tax ,the fund value as of today is 5,39,852.00 against an invested amount of 300000.00.I am an income tax payee in the bracket of 30%.
    Regards

      1. Dear Sir,
        Reverting back to you after about 6 months.The ICICI Prulife Life time Pension Plan II policy was without any Insurance cover. I paid Rs 30000.00 per year for 10 years till 2016. I got the maturity proceedings with a maturity value of 5,67,000.00 (against a total premium of Rs 3,00,000.). The company gave me the entire maturity amount.
        I would like to know income tax implication now for above policy .
        Regards
        Dr Rajeev

  31. Thank you for the prompt reply, Sir.
    The following options are available regarding the annuity.
    Life annuity: You will get regular (monthly/quarterly/yearly) annuity payouts from the scheme till you are alive. The annuity stops after your death.
    Life annuity with return of purchase price: You will continue receiving annuity payments regularly until you die. After that, the insurer returns the initial amount, which was used to purchase the annuity, to your nominee. It is a good option for those who want to leave a legacy behind.
    Annuity payable for a guaranteed period: The annuity is to be paid for a guaranteed period, say 5, 10 or 15 years even if the annuity buyer dies. Annuity stops either on the death of the annuitant or completion of the guaranteed period, whichever is later.
    Inflation-indexed annuity: Every year, there will be a rise in the annuity payable at a certain rate, say 2% or 5%. Though it may not be linked to the actual inflation rate, the rationale is that it would take care of the increase in expenses to some extent.
    Joint life survivor annuity: It keeps paying till either you or your spouse is alive.
    Joint life annuity with return of purchase price: It keeps paying till you or your spouse is alive. In the case of death of the both, the nominee is entitled to get the initial invested amount.
    Which is the best opton, Sir? I am 54 years and retiring from Govt service after 4 years and spouse has 13 more years of govt. service. regards

    1. Dear Sir,
      There is no crisp answer.
      If I were you and had to purchase an annuity plan, I would have gone with Life annuity with return of purchase price.

  32. Dear Mr. Deepesh,
    I had a ICICI PRU flexi Growth (Pension Plan), which I had surrendered before maturity (August 2017). The Premium tenure was 15 years, but I paid for 10 years and then surrendered due to some urgent requirements. Please let me know if the entire surrender amount is taxable now? Also, do I need to show it as ‘Other Income’ while filling the ITR? Yor opinion in this regard will be highly appreciated.

    1. Deepesh Raghaw

      Dear Mr. Pal,
      If you took the tax benefit for investment under Section 80CCC, the entire surrender amount is taxable at your slab rate.

  33. Amitava Sengupta

    (1) The 2018-19 Budget allows Std Deduction of Rs 40k to recipients of salary/pension. Will a recipient of pension under PMVVY be eligible for claiming Std deduction under the I.Tax rules ?
    (2) What is the best Annuity scheme offered by LIC (or any nationalised insc co) ?
    Thank you.

    1. Deepesh Raghaw

      1. That benefit is for pension from employer. Income from PMVVY does not get standard deduction benefit.
      2. You can try Jeevan Akshay.

  34. Dear Sir

    I have a ULIP policy from ICICI prudential whose original maturity date was 12 March 2017 but i postponed the maturity date by 2 years(i.e. 12 March 2019). If I now surrender the policy and opt for the annuity plan will the corpus/surrender value as of now be taxed in this years income and also will I have to pay taxes as per my marginal tax rate. Kindly suggest.

      1. Dear Sir

        I postponed the maturity date of my policy by two years. The policy is the same. I didnot change the policy. As i didnot want to take pension during 2017 hence i postponed the maturity date by 2 years. Now the new maturity date is 12 March 2019. But if now I want to opt for pension and surrender the policy and take a annuity plan for the corpus build till date then will the surrender amount be taxable as per the marginal tax rate in the current year.

        1. Deepesh Raghaw

          Hi Rana,
          IT Act is silent on such cases.
          It talks merely about the surrender. And the surrender amount is taxable.
          As I understand, you merely deferred the annuity purchase (and not really increased maturity). Is that the case?
          Do you pay an additional premium for the extended period?
          Btw, why do you want to surrender the policy?

          1. Yes I deferred the annuity purchase and the new date is 12 March 2019. But if i want to start the annuity now will the corpus till date be taxed.

          2. Deepesh Raghaw

            Hi Rana,
            I do not have a very concrete answer.
            Please talk to a CA about this.
            Technically, it shouldn’t be surrender since you have merely deferred the annuity purchase. But I am not very sure about this.
            Better to consult a CA before exiting the plan.

  35. I have a ICICI Life Stage Pension Plan with corpus of 40 lakhs maturing this year. If I decide to surrender they will deduct TDS 30.9% as I am a NRI. Will I be able to claim refund when I file my return if I submit Form 10F and Tax Residency Certificate of UAE.

    1. Deepesh Raghaw

      Hi Jeffry,
      The entire amount is taxable. Btw, why do you want to surrender when the plan is maturing this year.
      If excess return had been deducted, you can claim it back while filing ITR.

  36. Hi deepesh
    I have an ICICI pru life pension plan which is maturing next month 28-July-2018. I had paid 10 premiums for 10 years from 2008. The insurance official has suggested that i re-invest either part or full amount to another new plan to avoid tax with the same company as the amount will not hit the bank..Is it really true? Also would like to know how to take an annuity with a different insurer, say… from ICICI pru life to LIC.

    1. Deepesh Raghaw

      Hi Anto,
      Typically, you have to purchase annuity from the same insurer. So, unlikely you will be allowed.
      You can go through terms and conditions of the plan to see if the purchase of plan from another insurer is permitted.

      Don’t fall for such traps. You will have to surrender the plan and those proceeds will be taxable (if you took tax benefit for investment under Section 80CCC). Insurance officials typically suggest such tricks to meet their targets.
      As you would expect, your interests get the least priority.
      Suggest you go through the following post:
      https://www.personalfinanceplan.in/maturing-pension-plans-ulips/
      Suggest you consult with your CA too.

  37. Hello!
    Can I claim deduction u/s 80D for the premium Paid by me for the Critical Illness Policy of my wife? In this Policy My wife is both Proposer as well as Insured.

    Please advice.
    Thanks.
    Ketan Shah

    1. Deepesh Raghaw

      Yes, you can claim under 80D if the premium was paid from your account. You don’t have to be a proposer to claim tax benefit.

  38. Sir I had lic market plus policy. 50000single premium policy. It’s matured July 2018. .return is 1,06,250 rupees. One lakh above compulsory pension. Now my age is 70. So many critical illness in my health..i want total amount. What can I do

    1. Dear Sir,
      I understand your concern. However, pension plans are pension plans for a reason. You get pension from such plans.
      If the accumulated corpus is above a certain threshold, the purchase of annuity is mandatory. Such are the rules.

  39. Hello,
    My age is 52.
    I switched job 2 years back. In my earlier employment, we had Superannuation benefit (LIC GSCA) Entire contribution was from the Employer side. My new employer did not have Superannuation benefit. Post-resignation I opted for 1/3rd commutation of Superannuation accumulation and the balance was converted into Annuity Plan (annual payment of annuity).
    Is the 1/3rd amount commuted by me taxable?? Please advice

    Regards,

    Ketan Shah

  40. Suvasish Chatterjee

    Hello,
    My Dream life pension plan was matured this year, and as per IRDA rule, Bharti AXA refund 1/3 of fund value to me and 2/3 to LIC annuity pension fund directly, during payment they deducted the TDS on Total amount @1%,

    As 1/3 is not taxable & 2/3 already invested in LIC annuity plan, so my question to you, how I can recover the TDS which was already deducted by insurance co during payment and how I fill ITR-1 in such scenario.

    1. Hi Suvashish,
      Insurance companies deduct TDS when the amount received is taxable.
      Did you surrender the plan or did the plan mature?

  41. I had a ICICI Prulife Life time Pension Plan II policy without any Insurance cover. I paid Rs 30000.00 per year for 10 years till 2016. I got the maturity proceedings with a maturity value of 5,67,000.00 (against a total premium of Rs 3,00,000.). The company gave me the entire maturity amount.
    I would like to know income tax implication now for above policy .
    Is it fully tax exempt? or 33 % of Rs 2,67,000.00 which I gained is tax exempt?
    Regards
    Dr Rajeev

    1. Hi Rajeev,
      I checked the policy wordings.
      Here is what I found.
      Benefits payable on Vesting date:
      On the Vesting Date the annuitant, being the life assured under the Policy shall
      have the following options:
      (i) to receive upto one third of the Value of Units under the Policy computed
      using the unit value on the Valuation Date immediately following the
      Vesting Date, in lumpsum and to utilise the balance amount to purchase
      annuity of the type as chosen or
      (ii) to utilise the entire Value of Units under the Policy computed using the unit
      value on the Valuation Date immediately

      I am not sure how they can return the entire amount to you on maturity. This is not allowed for pension plans.
      This is only possible in case of surrender. In case of surrender, you can claim deduction for premiums paid.

      1. Sir,
        This was entirely a Pension policy.No Insurance. The death benefit as per my Application was ZERO.
        Regarding the return of entire amount, the Insurance Company said as per rules I could commute only 33 .3% of maturity amount.But since return with balance in annuity will be around 6.5% and that too taxable ,they told me I could claim the full amount and I got it credited to my bank account.The original vesting date was 23/05/2016.(ten years after commencement of policy on 23/05/2006).As the fund value was not good at the time,I got the vesting date postponed to 01 Dec 2018.
        Now the doubt persists on Income tax on amount received.(premium paid 300000.00 and maturity value 5,67,000.00)
        Regards

        1. Rajeev,
          As mentioned earlier, something does not seem right.
          In any case, you shouldn’t have to pay tax on more than Rs 2.67 lacs.

          1. Thank you very much, Sir. A similar doubt was raised by another person in this forumon 30 Jan 18.. ICICI Prudential seems to be encouraging the withdrawal of full maturity amount citing the reason that the return through annuity is not great. Regards

      1. Sir,The Company confirmed that no TDS has been done on maturity amount. Does it mean that the whole amount is NOT taxable. Regards

          1. Hello Mr Deepesh ,
            I have same query ,
            I have bought ICICI prudential golden life with insurance cover of 3,00,000/- I claimed tax benefits under sec 80 C for premium paid
            I paid premium of 60,000 per year from 2006-2011.
            My policy matures in Jan 2019
            I am opting for 100% withdrawal of maturity amount
            What are tax implication if I am getting entire amount credited to my account and not opting for 2/3 rd as Annuity .
            The company is not deducting any TDS

            Regards

          2. Dear Mr Amrit,
            Could not find the policy online. Hence, cannot comment.
            However, if no TDS is deducted, there is unlikely to be any tax liability.
            My apprehension has always been that a pension plan can’t be without pension.

    1. Sir
      I have HDFC pension champion 10 year
      ULIP policyy from August 28 ,2010 which matured on August 28 ,2020. I paid Rs 200000 premium per year for 3 years after which I stopped paying premium as fund performance was too poor and charges too high. The policy was in paid up state till maturity. Total premium paid was Rs 600000 and maturity value
      Rs 610000 .Now in light of IRDA rules of 2019 can I claim 60% as lump sum amount ? HDFC LIFE has already credited 33 % and refusing for 60% lump sum although they are agreeable for another insurer to pay annuity . Please advise

  42. Suvasish Chatterjee

    Hi Deepesh

    My Dream life pension plan was matured this year, and as per IRDA rule, Bharti AXA refund 1/3 of fund value to me and 2/3 to LIC annuity pension fund directly, during payment they deducted the TDS on Total amount @1%,
    Plan matured on July’18

    As 1/3 is not taxable & 2/3 already invested in LIC annuity plan, so my question to you, how I can recover the TDS which was already deducted by insurance co during payment and how I fill ITR-1 in such scenario.

    1. Hi Suvashish,
      Shouldn’t have happened. TDS is deducted where the proceeds are taxable. Doesn’t seem to apply for your case.
      Can you please check this once with ICICI Pru why they deducted?
      In any case, if the proceeds are not taxable, you can claim it back at the time of filing ITR.

  43. Harish Chandnani

    Hi Deepaesh,
    I have a 15 year Life time pension plan of ICICI Prudentiol (purchased under 80CCC in 2004in which I have been paying yearly premium of Rs 10000/-since 2004. An amount of Rs 1,50000/- has been invested till date and the fund value as on today is 2,89000/-. The policy is in lapsing on 3.3.2019 and I have an option of taking pension on maturity value or continuing further for another few years and taking pension later when the fund value increases or take the entire amount before the policy maatures on 3.3.2019. Please suggest which is the best option to go for. I am to retire next month and I do not have a pensionable service. What will the tax liabilities be if I encash the policy before maturity on the market rate of the day?
    Regards
    Harish

  44. I WOULD BE VERY THANKFUL IF YOU UP-DATE THIS ARTICLE WITH CURRENT TAX PROVISIONS AND THE MULTIPLE FLAVOUR OF PRODUCTS OFFERED BY PRIVATE INSURERS ( ULIPS, , PENSION , ANNUITIES etc )

  45. Hi Deepesh, need your expert advice for following matter.

    I have ICICI Pension Policy maturing early next year. Paid premium of Rs. 10k for every year for last 18 years. I understand if I surrender the policy then all proceedings from policy will be taxable as my tax slabs. Other option is get 1/3 rd as tax-free and buy annuity of remaining 2/3 amount. Well, I’m looking for option (ready to lock in fund for few more years) where I will get my whole money as tax free or will after paying minimal taxes. Please advise. Thanks

  46. Hi Deepesh,
    I purchased market plus policy from LIC in 2010. It was matured in 2020. LIC returned the amount saying not sufficient to purchase annuity and no TDS deducted. Is there any tax implications to me while filing returns or is it tax free amount. Please advice.

  47. I purchased the life time pension policy in March 2003. It will mature in 2026

    Will the entire amount against this policy received (surrender) now attract tax. Or there is exemption of Pension ULIP policies issued before certain dates are exempt.

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