Sir I purchased a SBI Life Smart Wealth Builder policy in March 2015(when I was 50+ years) with annual premium of Rs 40,000 and the sum assured was given 7 times i.e. only Rs 2,80,000 in place of normal 10 times (Rs 4 lakh) as I didn't get medically examined. I paid for 5 years i.e. total Rs 2 lakh as premium till 2019, and the policy matured on March 2025 when I recd total Rs 3.70 lakh(gross). The SBI life Smart Wealth Builder policy is a ULIP and the funds were kept as units under different funds. I handled and switched the funds thru online login and the maturity amount given was the fund value based on NAV of the units of the various funds. SBI life has deducted 2% TDS from my maturity amount. Kindly check and tell me whether my maturity income of Rs 1.70 lakh from the SBI Life Smart wealth builder LP policy (clearly an ULIP), where the annual premium was more than 10% of Sum Assured, is taxable under Income Tax Act and if so whether it is to be taxed as Other source income or as Capital Gain income. Regards

Ans: It is good that you have maintained all the policy details and have clearly tracked the premium paid, sum assured and maturity value. That makes the tax analysis much easier.

» Understanding Your ULIP Tax Position

– You purchased the ULIP in March 2015.

– Annual premium was Rs 40,000.

– Sum assured was Rs 2,80,000.

– Therefore, the annual premium exceeded 10% of the sum assured.

– Total premium paid was Rs 2 lakh.

– Maturity amount received was about Rs 3.70 lakh.

– Gain earned was about Rs 1.70 lakh.

» Whether Section 10(10D) Exemption Is Available

– For life insurance policies issued after 1 April 2012, maturity proceeds are generally tax-free only if the annual premium does not exceed 10% of the sum assured.

– In your case, the annual premium was more than 10% of the sum assured.

– Therefore, the maturity proceeds may not qualify for exemption under Section 10(10D).

– As a result, the maturity proceeds can become taxable.

» Nature Of Income – Capital Gain Or Other Sources?

– Based on the facts provided, the maturity amount is arising from a ULIP which did not satisfy the conditions for exemption.

– The maturity proceeds are generally not treated as capital gains in the same manner as redemption of mutual fund units.

– In such cases, the taxable surplus is generally considered taxable under the head "Income from Other Sources".

– Accordingly, the gain portion, after considering eligible premium payments, may become taxable under this head.

» Impact Of TDS Deduction

– SBI Life has deducted 2% TDS from the maturity amount.

– Deduction of TDS itself does not determine the final tax liability.

– The final tax will depend on your total income and applicable income tax slab.

– The TDS deducted can be claimed as credit while filing your Income Tax Return.

» One Important Area To Verify

– Taxation of non-exempt ULIPs has seen changes and interpretations over the years.

– Since your policy was issued in 2015 and matured in 2025, it would be prudent to verify the exact treatment based on the TDS certificate, policy document and the insurer's maturity statement.

– The reporting by the insurer can also provide clues regarding the income head under which they have considered the payment.

» My Assessment

– Based on the information shared, the maturity proceeds are unlikely to qualify for tax exemption under Section 10(10D) because the premium exceeded the prescribed percentage of the sum assured.

– The gain of around Rs 1.70 lakh is therefore likely to be taxable.

– In your case, the stronger view is that it should be offered to tax under "Income from Other Sources" rather than as Capital Gains.

– The TDS already deducted can be adjusted against your final tax liability.

» Finally

– Keep copies of the policy bond, premium payment records, maturity statement and Form 26AS.

– Verify that the TDS deducted by the insurer is correctly reflected in your tax records.

– Since the taxability arises mainly because the premium exceeded the permitted percentage of the sum assured, this is an important point to disclose properly while filing the return.

– Before filing, it may be worthwhile to have the documents reviewed by a Chartered Accountant so that the correct reporting position is adopted and there is no future query from the Income Tax Department.

Best Regards,

K. Ramalingam, MBA, CFP,

AMFI-Registered MFD – ARN 4188

www.holisticinvestment.in

https://www.linkedin.com/in/ramalingamcfp/