Hello Sir, I have a life stage pension plan with icici prudential which i began in the year 2010 the current value of it is around 4,25,000/- due to some financial needs i want to surrender the policy.There is no surrender charge in the policy but tax will be deducted on the above value as told to me by the employee of the company.Is that tax TDS and at what rate will it be deducted? Will i be able to claim refund while filing return the next year if my income is below taxable limit?

Ans:

1. It may be noted that a pension plan is taxable. Only life insurance policies with the stipulated life cover would be exempt from income tax. The surrender value is added to the income of the policyholder and offered to tax if he has availed of the tax benefits while paying premium. If he has not availed tax benefits, then the excess of surrender value over the premium paid will be added to income and taxed at marginal rate of tax.

2. If you extended till maturity and opt for annuity, the income will be added to the income of the policy holder and taxed accordingly. You however would be able take the commutation benefit as tax free. IRDA has set a cap of commutation of up to 60% of the corpus in 2019.

Ans: Partial Withdrawal Tax Implications
Partial Withdrawal - Tax Implication Now:

Since your ULIP was bought before 2010, the partial withdrawal is tax-free if the premium does not exceed 10% of the sum assured (Rs 5.2 lakhs in your case).
No TDS Deducted - Treatment for Tax Filing:

If no TDS is deducted, the withdrawal is still tax-free and does not need to be treated as taxable income.
Surrender Tax Implications
Surrender of Policy - Tax Implication Now:

If you surrender the ULIP, the maturity proceeds are tax-free, as your policy was purchased in 2008, provided the premium does not exceed 10% of the sum assured.
No TDS Deducted on Surrender - Treatment for Tax Filing:

If no TDS is deducted, the surrender value is still tax-free and does not need to be reported as taxable income.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

www.holisticinvestment.in

Ans: Yes, there can be tax implications on the surrender value of life insurance policies, depending on the specific conditions under which the policy was issued and the tax regime you are under.

If the policy premium exceeds 10% (or 20% for older policies) of the sum assured: The surrender value may be taxable as income under "Income from Other Sources."

Rate of Tax: The applicable tax rate would be based on your income slab in the year of surrender, irrespective of the tax regime (old or new).

Surrender Charges: These charges reduce the payout but are not tax-deductible.

Before surrendering, consider the tax impact, your income slab, and the surrender charges to make an informed decision.

Best Regards,

K. Ramalingam, MBA, CFP

Chief Financial Planner,

www.holisticinvestment.in

Ans: Yes, there could be tax implications when you surrender a life insurance policy in India, depending on the policy terms and the premium payments.

Here's a breakdown:

1. Tax Deduction Claimed under Section 80C:

If the premium paid on the policy was claimed as a deduction under Section 80C, then the surrender value could be taxable.

Conditions: For the policy to remain tax-exempt under Section 10(10D), the premium paid should not exceed 10 per cent of the sum assured (for policies issued after April 1, 2012) or 20 per cent of the sum assured (for policies issued before April 1, 2012).

2. Surrender Before Minimum Lock-in Period:

If you surrender the policy before completing the minimum lock-in period (usually 5 years), the entire surrender value becomes taxable. The deductions claimed under Section 80C in earlier years will also be reversed.

3. Tax Rates:

Old Tax Regime: The surrendered amount is added to your income and taxed according to the applicable income tax slab rate.

New Tax Regime: Since you do not get exemptions or deductions under the new tax regime, the surrender value is still considered income and taxed as per your slab rate.

4. When is Surrender Value Tax-Free?

If the premium-to-sum-assured ratio is below the threshold (10 per cent or 20 per cent as mentioned above) and the policy has been held for the full term, the surrender value can be tax-exempt under Section 10(10D).

Given that tax rates depend on your income bracket, it’s crucial to consult with a tax advisor for personalised advice.

Typically, the rate would be as per your slab rate, which could be between 5 per cent to 30 per cent, plus cess and surcharge, depending on your total income.