Sir, I had invested Rs 8 lacs in Bajaj single premium policy in 2005.
- ULWTDRW Rs 3,00,000 in 2006
- ULWTDRW Rs 2,50,000 in 2009
- ULWTDRW Rs 5,00,000 in 2010
- ULWTDRW Rs 1,62,000 in July 2021
Policy payout: Rs 12,12,000
Premium Paid: Rs 8,00,000
Policy Income: Rs 4,12,000
TDS @ 5 per cent: Rs 20,600
When I had taken this policy, the provisions of insurance being 10 times was not there.
Now, can I index the policy and arrive at gains? It's wrong to take Rs 412,000 as income this year.
Please guide me.
Ans: Actually, in the period that you took the policy, the provision was not 10 times, but five times.
One can avail the exemptions under Section 10D (ie the maturity amount is tax free) if the premiums paid in a single year during the policy term are not more than 20 per cent of the sum assured for a policy purchased between April 1, 2003 and March 31, 2012.
The taxability -- if it crosses 20 per cent of the sum assured - -is not explicit in the tax laws.
But the common practice is to treat it as long term capital gains if the tenure is greater than three years, in which case you can also index the invested amount while applying the long term capital gains tax rate.