Life insurance surrender value Taxes

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🔷Surrendering a life insurance policy means giving up the plan before the end of actual tenure and redeeming the crued benefits as on the date of surrender.

For example, if you have purchased a life insurance plan for ten years, but if you want to end the plan avail the after five years, the proceeds you get benefits after five years on surrendering the policy is called the surrender value.

Tax Rules on Surrendering the Policy

🔷If you hold traditional life insurance policies like an endowment plan or a money-back plan, the surrender value is tax-free only if you have regularly paid the premium for the first 2 years of the policy tenure.

🔷If you hold a single premium life insurance policy, the surrender value will be tax-free in your hands if you have held the policy for at least 2 years from the date📆 of purchase.

🔷If you hold a Unit Linked Insurance Plan (ULIP), the surrender value is exempted from tax only if you surrender the policy after five years from the date of purchasing the plan.

🔷Basically the proceeds you receive or the surrender life insurance policy amount you get will be taxable.

🔷The tax exemption you may have claimed for premium payment under Section 80C of the IT Act will be reversed, and you would have to pay Basically the proceeds you receive or the surrender life insurance policy amount you get will be taxable.

🔷The tax exemption you may have claimed for premium payment under Section 80C of the IT Act will be reversed, and you would have to pay an additional tax on the exemption you claimed earlier when the policy was active.

🔷The surrender value that you may receive will not be tax-free under Section 10 (10D), and the amount will be treated as ‘income from other sourcesand taxed as per the existing tax bracket.

Source: Aditya Birla Capital

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