Periodic Payouts from LIC Policies: Are They Taxable When You Are Alive?
Life Insurance Corporation (LIC) policies often offer periodic payouts, also known as money back or survival benefits. For many beneficiaries, the question is whether these periodic payouts are taxable. The answer is largely straightforward but can vary based on specific conditions and tax laws.
Understanding Periodic Payouts
Periodic payouts are designed to provide continuous financial support to policyholders and their beneficiaries during the policy term. These payouts can be regular installments or lump sums and are often provided as part of various life insurance policies, such as money back policies, fully protective endowment policies, and permanent policies.
Tax Implications of Periodic Payouts
Under the Income Tax Act, India (Sec. 1010D), any sum received from a life insurer is generally not taxable if the premium payable is up to 10% of the sum assured.
Section 1010D of the Income Tax Act
According to Section 1010D, any sum received from a life insurer is fully exempted from income tax if the following conditions are met:
The policyholder pays a premium that is up to 10% of the sum assured. The payouts are made during the policy term. The policy does not lapse or terminate within the first year.If the premium paid exceeds 10% of the sum assured, the excess amount becomes taxable as per the applicable tax slab. This is because the tax implication shifts from the exemption provided by Section 1010D to the standard personal income tax rules.
Exemptions and Limits
It is important to note that some life insurance policies may offer additional provisions or options, which might affect the tax implications of periodic payouts. For instance, policies with higher premium payments might not be fully exempted under Section 1010D.
Furthermore, the tax laws in India are subject to change, and the specifics can get complex. It is advisable to consult with an experienced tax professional or a certified financial advisor to understand the implications fully.
Conclusion
Periodic payouts from LIC policies are generally not taxable if the premium paid is up to 10% of the sum assured. However, if the premium exceeds this limit, the tax implications can vary based on the policy terms and the tax laws in place.
Always seek professional advice and stay informed about the latest tax regulations to ensure you are making the most of your life insurance policies and minimizing tax liabilities.