Tax on Insurance proceeds

[Tushar More]

A client has taken 5 insurance policies of ₹ 5 Lacs each in the year 2011 by one time premium payment. Now it has received a maturity amount of ₹ 38 Lacs in current year. The client has not availed then ₹ 1 Lac deduction u/s 80C as it was utilized against NSC/other investment.

My Query is that since the client is not eligible for deduction u/s 10(10D) since it was a one time premium payment, what is the amount that should be taxed. Is there a way to reduce the tax liability?

[Ganeshan Kalyani]

The premium amount was eligible to claim deduction under 80c but since your overall investment was more the eligible deduction limit you could not avail the deduction for the premium paid for the policy which matured now. So you were not disqualified to claim for the deduction but the amount invested was more. Thus you were allowed to claim. Hence again you will not be able to get deduction on the same premium amount. In my view entire matured amount is taxable.

[Tushar More]

Thank you for your reply.

But i have 2 more queries realting to the same.

Firstly, since my investment exceeded the exemption limit, i had made investment from my taxed income, as no deduction was allowed then. Secondly, now when i have received the maturity amount, if the whole proceed is liable for taxation, then it would amount to double taxation.

Example: I invested ₹ 25 lacs from taxable income. Now when i received the maturity proceeds of ₹ 38 Lacs, it again gets taxed, which results in double taxation to the tune of ₹ 25 Lacs.

AI Summary

Taxation of insurance maturity proceeds questioned where premium deduction was unavailable, raising double taxation concerns.
Taxation of insurance maturity proceeds is raised where single premium policies were purchased but no deduction under Section 80C was available due to aggregate limit exhaustion; the adviser opines that entire maturity proceeds are taxable, and the taxpayer contends this would produce double taxation since premiums were paid from taxed income.