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: You have invested in a unit-linked pension plan since 2008.

The current fund value is Rs. 49 lakhs.

The plan matures in 2030.

As per the policy, you can withdraw 33% tax-free and the rest must be used for annuity.

Your relationship manager is suggesting surrender and reinvestment into a new pension plan.

The new plan allows 60% tax-free withdrawal instead of 33%.

You need to evaluate whether this switch is beneficial from a taxation and financial perspective.

Taxation on Surrender of Old Pension Plan
Pension plans under section 80CCC get tax benefits during investment.

If you surrender, the surrender value is taxable as per your income slab.

HDFC claims that no tax will apply as the amount is reinvested directly.

However, as per income tax laws, surrendering a pension plan leads to taxation.

Even if reinvested, the surrender value is added to taxable income.

Since you have claimed 80CCC benefits, surrendering can result in tax liability.

Misconception About Tax-Free Transfer
HDFC is not deducting TDS, but that does not mean no tax is due.

Income tax liability exists even if the amount is not received in hand.

If tax authorities later verify, you may face penalties or additional taxes.

You need written confirmation from HDFC and a tax expert’s opinion.

Evaluating the New Pension Plan Offer
The new plan allows 60% withdrawal instead of 33%.

The remaining 40% must still go into annuity.

Annuity income is fully taxable every year.

The new plan has additional charges, which can reduce returns.

The lock-in period of 5 years restricts flexibility.

If your goal is wealth creation, better options exist.

Should You Switch to the New Plan?
The tax-free withdrawal of 60% seems attractive, but consider the surrender tax.

If you are in the highest tax bracket, surrendering can be costly.

Locking funds in another pension plan reduces flexibility.

Instead, investing in mutual funds can give higher returns and better control.

You can withdraw systematically without annuity restrictions.

Reinvesting in a pension plan limits future financial choices.

Better Alternatives for Retirement Planning
Instead of shifting to another pension plan, consider equity mutual funds.

Mutual funds allow withdrawals with lower tax impact than annuities.

Debt mutual funds provide stability while maintaining flexibility.

Systematic withdrawal plans (SWP) help manage retirement income efficiently.

Combining equity and debt investments gives better post-retirement security.

What Should Be Your Next Steps?
Consult a tax expert before surrendering your pension plan.

Get written confirmation from HDFC on taxation treatment.

Compare annuity income vs. mutual fund withdrawals for retirement.

Ensure flexibility in withdrawals rather than locking into another pension plan.

Build a diversified portfolio that balances risk and liquidity.

Finally
Surrendering your pension plan may trigger tax liability.

Reinvesting in another pension plan may not be the best financial decision.

You need flexibility and better returns for retirement.

Mutual funds offer tax-efficient and high-growth alternatives.

Evaluate all options before making a final decision.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

www.holisticinvestment.in
https://www.youtube.com/@HolisticInvestment

Ans: Returns on all ULIPs purchased between April 2012 to February, 2021 are completely tax free if the premium was less than 10% of sum assured. For ULIPs purchased before April 2012, the maturity amount was tax free if the premium was less than 20% of sum assured for that policy.

It is strongly advisable to consult CA to understand various scenarios

Vipul Bhavsar
Chartered Accountant
www.capitalca.in

Ans: Understanding Your LIC Pension Plus Policy Structure

You paid Rs 50,000 premium yearly for 10 years.

You did not claim tax benefit under Section 80C.

So, tax exemption does not apply on contribution.

The policy vested 5 years back.

Since then, you are getting Rs 26,000 per year.

Now you want to discontinue and take around Rs 3 lakh.

Taxation on the Annuity Received (Rs 26,000 Yearly)

Annuity received from LIC is treated as income.

It is taxed as “Income from Other Sources”.

There is no exemption on annuity.

Even though you didn’t claim 80C, tax is still applicable.

You are showing annuity in ITR. That is correct.

Continue showing it every year till policy ends.

Taxation on Withdrawal of Balance Corpus (Rs 3 Lakhs)

LIC Pension Plus is a unit-linked pension plan.

ULPPs are taxed differently from ULIPs.

If you surrender after 5 years, you can withdraw fund value.

But full withdrawal is taxable.

Taxable as per your income tax slab.

No exemption under 10(10D) since it’s a pension policy.

Even though you didn’t claim 80C, that doesn't change taxation.

Why It Is Still Fully Taxable

LIC pension plan matures or is surrendered.

Payout is treated as pension income, not life insurance.

The corpus withdrawn is not tax-free.

Even if annuity had started, lump sum balance is taxable.

Tax is calculated on entire Rs 3 lakh corpus.

How to Report in ITR

Show Rs 3 lakh as income from other sources.

Mention it in schedule OS (other sources) of ITR.

Pay tax as per your slab.

No indexation or capital gain benefit applies here.

No deduction on original premium, as 80C not used.

So you don’t reduce your cost from the 3 lakh.

Can You Reduce Your Tax in Any Way?

Only if your total income is below Rs 3 lakh.

Senior citizen basic exemption is Rs 3 lakh.

Above that, tax applies at 5%, then 20%.

You can spread income if you have flexibility.

But for surrender, amount comes in one year.

What You Can Do with the Corpus Now

Avoid reinvesting in another LIC pension plan.

Don’t go for traditional endowment or ULIPs again.

Invest the Rs 3 lakh in mutual funds.

Use SWP to get income regularly.

This gives more tax efficiency.

Long-term capital gains on equity MF are taxed only above Rs 1.25 lakh at 12.5%.

You get better flexibility and liquidity.

Avoid Index and Direct Funds Going Forward

Index funds do not beat inflation consistently.

They give average returns, no downside protection.

Actively managed funds adapt to market changes.

Direct funds are for experts only.

No guidance or review is available.

You must invest via regular funds with a Certified Financial Planner.

This gives review, rebalancing, and long-term planning.

Avoid Annuity Products Again

Annuities give low returns.

They are fully taxable as income.

No flexibility once you start.

You lose control over your own money.

MF SWP is better alternative for retirees.

Gives better return and lower tax.

Check If You Hold Any Other Investment-cum-Insurance

If you have LIC endowment, ULIP or pension plans, review them.

Surrender them if returns are poor.

Reinvest into mutual funds or hybrid funds.

Get guidance from Certified Financial Planner.

Ensure your retirement money works hard for you.

Use the Proceeds for These Financial Goals

Maintain Rs 50,000–Rs 1 lakh in liquid funds.

Keep balance in hybrid mutual funds.

Start monthly SWP of Rs 2,000–Rs 2,500.

This gives regular income and preserves capital.

Add nominee and maintain updated records.

Review portfolio every year with your spouse.

Tax Filing Guidance for Senior Citizens

Use ITR 1 if pension and interest income only.

If mutual funds are sold, use ITR 2.

Show annuity as “Other Income”.

Show surrender value as income in same head.

Keep documents like policy copy, surrender letter, bank credit proof.

Retain for 6 years for tax safety.

Final Insights

You did right by not claiming 80C if PPF limit was exhausted.

But taxation still applies on annuity and withdrawal.

LIC pension plans do not give tax-free maturity.

Surrender amount is fully taxable under your slab.

Reinvest this wisely in mutual funds now.

Avoid annuities, index funds, and direct plans.

Use Certified Financial Planner to guide future income planning.

Maintain simplicity, tax efficiency, and flexibility in retirement.

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