Tax Implications of Surrendering Life Insurance Policies

Ans: As I understand from given facts, it is pension plan purchased through employer. Pension from employer is chargeable as Income from Salary at slab rate. Further, TDS can be claimed as refund by filing ITR, if there is no tax liability.

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: Thank you for sharing the updated surrender value and maturity amount details.

You will get Rs. 2 to 2.25 lakhs if you surrender now.

On maturity, you may get Rs. 21 lakhs after 15 more years.

Now, let’s assess both options from practical, financial, and emotional angle.

Comparing Current Value vs Future Value

If you hold, you will pay Rs. 5.4 lakhs more over 15 years.

The return will be Rs. 21 lakhs. That includes your Rs. 3.6 lakhs already paid and Rs. 5.4 lakhs more.

Net gain is around Rs. 12 lakhs over 15 years.

This gives you less than 5% annual return.

Also, this money is locked for 15 years. No liquidity.

If You Surrender Today

You get Rs. 2 to 2.25 lakhs in hand now.

No more premium to be paid. Rs. 36,000 saved annually.

That frees up cash every month. Rs. 3,000 monthly is useful for other priorities.

If you invest through SIP in mutual funds, you get better returns.

Debt pressure also reduces faster with this Rs. 2 lakh.

Emotion vs Logic

Rs. 21 lakhs after 15 years may sound attractive.

But this is slow growth. And not flexible.

You must not make decisions from emotional attachment.

LIC policies sound secure, but are poor wealth creators.

You can get better cover with term plan and better returns with mutual funds.

Decision Summary

Surrender now gives flexibility, cash flow, and debt support.

Continuing gives low return, poor liquidity, and future burden.

From Certified Financial Planner’s view, surrendering is the right choice now.

Once your debt is under control, start SIPs in regular mutual funds through MFD with CFP support.

You will grow faster and stay more financially stable.

You have taken right steps by evaluating surrender now.

Make the change and move to better financial future.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

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