Confused Dad: VIT AP or Bangalore for My Daughter's CSE?

Ans: Let’s now re-assess the taxability of the maturity amount from your SBI Life Smart Wealth Builder Policy, assuming the annual premium is Rs 40,000, not Rs 4,000.

? Taxability Depends on Section 10(10D) Conditions

– Life insurance policy maturity proceeds are exempt under Section 10(10D) if conditions are met.

– One main condition: Annual premium must be less than 10% of sum assured (if policy issued after 1-Apr-2012).

– You mentioned annual premium is Rs 40,000. Now check the sum assured in your policy.

– If the sum assured is at least Rs 4,00,000 or more, then 10(10D) exemption applies.

– In that case, entire maturity amount will be tax-free, no tax to be paid.

? When Tax Becomes Applicable

– If the premium exceeds 10% of the sum assured, then 10(10D) exemption is lost.

– The entire maturity amount becomes taxable under "Income from Other Sources".

– However, death benefit is always tax-free.

– Also note: From FY 2023-24, high premium policies (total annual premium above Rs 5 lakh) have additional tax rules.

– But your premium is only Rs 40,000, so these new rules will not apply.

? If 10(10D) Exemption Is Lost, Then

– You have to pay tax on maturity proceeds as per your income slab.

– Only the amount received above the total premiums paid will be treated as taxable.

– For example, if you receive Rs 3 lakh maturity and you paid total Rs 2.4 lakh premiums (over 6 years), then Rs 60,000 is taxable.

– Tax rate will be as per your applicable income tax slab.

? TDS Rules to Remember

– If the maturity amount is taxable, TDS at 5% will be deducted on income portion only.

– If you submit Form 15G/15H (and eligible), you may avoid TDS.

– But still, you will have to show the income in your ITR and pay tax as needed.

? What You Can Do Now

– Check your policy document or online account for exact sum assured.

– If sum assured is 10 times or more of annual premium (Rs 40,000), then you’re safe.

– The maturity amount will be tax-free under Section 10(10D).

– If not, calculate the taxable portion and plan to declare it in your ITR.

– Consider consulting a Certified Financial Planner for accurate reporting and reinvestment advice.

? Final Insights

– With Rs 40,000 premium, you’re likely within the tax-free zone if sum assured is Rs 4 lakh or more.

– New taxation rules on insurance do not affect you unless total annual premiums exceed Rs 5 lakh, which they don’t.

– Always keep maturity documents, premium payment proofs and policy details handy at tax filing time.

– For better long-term growth and tax efficiency, consider future investments in mutual funds through MFDs with CFP credential instead of insurance-linked investments.

Best Regards,
K. Ramalingam, MBA, CFP,
Chief Financial Planner,
www.holisticinvestment.in
https://www.youtube.com/@HolisticInvestment