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Should I pay tax on my LIC and Max Life annuity income of ₹297,000?

Vivek

Vivek Lala  | Answer  |Ask -

Tax, MF Expert - Answered on Feb 11, 2025

Vivek Lala has been working as a tax planner since 2018. His expertise lies in making personalised tax budgets and tax forecasts for individuals. As a tax advisor, he takes pride in simplifying tax complications for his clients using simple, easy-to-understand language.
Lala cleared his chartered accountancy exam in 2018 and completed his articleship with Chaturvedi and Shah. ... more
Chander Question by Chander on Feb 10, 2025Hindi
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I am getting monthly annuity of 10000 from Max and I have received Rs177800 maturity amount from LIC and total become 297000. Is this amount of LIC & Max annuity taxable. I don't have any other income exept interest in saving account.

Ans: Annuity payouts are generally taxable as income under the head 'Salaries' in the year they are received so if your income from salaries and interest is below the taxable limit then no tax
DISCLAIMER: The content of this post by the expert is the personal view of the rediffGURU. Users are advised to pursue the information provided by the rediffGURU only as a source of information to be as a point of reference and to rely on their own judgement when making a decision.
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Asked by Anonymous - Jul 12, 2025Hindi
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And we are still investing in mutual funds and plan to do so for next 5 years,my husband invests 30 k ,and i invest 45k
Ans: You and your husband are doing a fantastic job with your monthly investments. Investing Rs. 75K every month shows strong financial discipline. This consistent approach builds wealth and protects your future. Let us now assess your mutual fund journey from all angles.

? Current SIP Strength and Long-Term Potential

– Monthly SIP of Rs. 75K is a solid starting base.
– Over 5 years, this creates a strong corpus.
– Assuming growth, this will accumulate significant wealth.
– Your investing period of 5 years needs careful product selection.
– Short-to-medium term investing demands stability, not aggressiveness.
– Hence, fund selection must match time horizon and risk appetite.
– A Certified Financial Planner can guide scheme selection based on goals.

? Importance of Investment Tenure

– Five years is not a very long horizon.
– Hence, aggressive small-cap funds carry higher volatility.
– Stick to flexi-cap, large-cap, and balanced advantage categories.
– These offer better risk-reward balance in 5-year timeframe.
– Avoid overly sector-specific or thematic funds.
– Asset allocation should favour stability over chasing returns.

? Regular Plan Advantage vs Direct Plan Disadvantage

– Many investors choose direct plans for saving expense ratio.
– But they miss out on expert guidance from Certified Financial Planners.
– This increases chances of wrong fund selection or wrong exit timing.
– Wrong asset allocation or overlapping funds also impact returns.
– Regular plans through CFP-backed MFD offer holistic hand-holding.
– You receive periodic rebalancing, performance monitoring, and personalised reviews.
– The cost difference is minor compared to guided wealth creation.
– A goal-based approach with CFP supervision reduces regret and errors.

? Stay Away from Index Funds – Understand Why

– Index funds may look simple and low cost.
– But they carry hidden disadvantages often overlooked.
– Index funds invest passively in top companies of the index.
– They offer no downside protection in falling markets.
– No active strategy during volatile or sideways periods.
– Also, they follow market blindly, without fundamentals.
– In India, market inefficiencies offer space for active managers.
– Actively managed funds outperform index funds in India consistently.
– They are agile, selective, and dynamic in asset picking.
– Certified Financial Planners help choose best-performing active funds.

? SIP Strategy Review – Risk Alignment and Suitability

– Check how much of your Rs. 75K goes into high-risk funds.
– Avoid high exposure to small-cap and mid-cap segments.
– Cap allocation to these at 20%-30% max.
– Majority should be in balanced, large, or multi-cap funds.
– This reduces downside and improves consistency.
– Each fund must have a clear role and no overlap.
– Avoid too many funds for diversification.
– Keep portfolio compact with 5-7 funds only.

? Goal Planning – Tie Investments to Life Events

– If you have specific financial goals, allocate accordingly.
– Short-term goals should be in low-risk hybrid funds.
– Long-term goals may include child’s education, retirement, etc.
– Discuss these in detail with a CFP.
– This helps match investment type with goal duration.
– Also aligns growth expectation and exit strategy.
– Many investors miss their goals due to mismatched funds.
– Avoid this mistake by goal-based investment planning.

? Rebalance and Review Periodically

– SIPs need annual review to ensure alignment.
– Fund performance can vary due to many factors.
– A fund lagging for over 12 months needs attention.
– Also review sector exposure, overlap, and tax impact.
– A Certified Financial Planner will do this periodically.
– Rebalancing helps protect from over-concentration.
– It also captures gains and shifts to better opportunities.

? Tax Planning within Mutual Fund Framework

– Mutual fund taxation impacts your net returns.
– For equity funds, STCG is taxed at 20%.
– LTCG above Rs. 1.25 lakh is taxed at 12.5%.
– For debt funds, gains taxed as per income slab.
– Plan exits smartly to reduce tax outgo.
– Use tax-harvesting if nearing 1.25 lakh LTCG.
– Align exit strategy with fund performance and tax limits.
– Don't ignore taxation; it quietly erodes final returns.

? Avoiding Insurance-Cum-Investment Products

– If you or your husband have LIC, ULIP, or money-back plans, evaluate them.
– These offer poor returns and low flexibility.
– Surrender such policies if lock-in is over.
– Reinvest in mutual funds with proper planning.
– This boosts compounding and improves goal alignment.
– Don’t mix insurance with investment ever.
– Treat them as separate needs for better results.

? Protecting Your Investment Journey

– SIPs should not stop even in bad markets.
– Market dips are best times to accumulate more units.
– Avoid emotional decisions during correction periods.
– Stay patient and continue monthly contributions.
– Rupee Cost Averaging helps reduce risk over time.
– If income reduces, lower SIP, but never stop.
– Stay consistent and disciplined for long-term success.

? Emergency Fund and Insurance Backup

– Ensure emergency fund is at least 6 months’ expenses.
– This avoids disturbing SIPs during sudden financial stress.
– Also review life and health insurance coverage.
– Ensure it is sufficient and updated.
– Use term insurance for life cover, not ULIPs.
– Use family floater health insurance for medical needs.

? When 5 Years End – Exit and Reinvestment

– Start planning your exit 12-18 months before maturity.
– Move funds gradually to safer options.
– This protects capital from market corrections.
– Consider conservative hybrid funds near withdrawal time.
– Don’t wait till last month to act.
– Also plan next set of goals and reinvestment.
– Don’t keep funds idle after 5 years.
– Reinvest based on new goals or income needs.

? Keep Emotions Out, Data In

– Emotional investing leads to poor decisions.
– Don’t chase top performers each year.
– Choose funds with consistent 5+ year track records.
– Also check downside protection, not just returns.
– Use data, not marketing material, for fund choices.
– A Certified Financial Planner uses professional tools for selection.
– Stay objective, not reactive.

? Avoid Investment Myths and Social Advice

– Friends or relatives may suggest schemes casually.
– Their risk appetite may not match yours.
– Also avoid YouTube tips or WhatsApp forwards blindly.
– Many half-truths and old advice circulate online.
– Follow structured and professional guidance only.
– Choose investments based on your family needs.
– Don’t compare portfolios or returns with others.
– Your journey is unique.

? Final Insights

– Your joint SIP effort of Rs. 75K/month is admirable.
– Continue this for 5 years with discipline and strategy.
– Choose funds based on goal, risk, and time.
– Avoid index and direct funds to stay protected.
– Take guidance from Certified Financial Planner regularly.
– Link each investment to a goal and review annually.
– Protect capital near goal maturity using low-risk funds.
– Use regular plans for full support and peace of mind.
– Don’t mix insurance with investment at any stage.
– Maintain emergency fund and review risk coverage.
– Reinvest matured corpus based on next life phase.
– Keep simplicity, discipline, and patience in investing.
– Long-term wealth is created through consistency, not luck.
– Keep up your good work and grow steadily.

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

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DISCLAIMER: The content of this post by the expert is the personal view of the rediffGURU. Investment in securities market are subject to market risks. Read all the related document carefully before investing. The securities quoted are for illustration only and are not recommendatory. Users are advised to pursue the information provided by the rediffGURU only as a source of information and as a point of reference and to rely on their own judgement when making a decision. RediffGURUS is an intermediary as per India's Information Technology Act.

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