If you have purchased or are looking to purchase LIC Jeevan Shanti policy, this post is for you. It answers questions about taxation related to this policy.
What is the Jeevan Shanti policy?
LIC Jeevan Shanti Policy is a pension plan that offers annuities. The policyholder can either buy an immediate annuity with the premium or invest in a single-premium, deferred-annuity plan. In the former option, the insurer starts annuity payments immediately after the buyer purchases the policy. However, in the latter option, it starts annuity payments after a deferment period.
Moreover, you can choose to take the annuity on a single life or a joint life basis. The latter means that the insurer continues to pay the annuity to the surviving spouse if the primary annuitant (i.e., the recipient of the annuity) dies early.
LIC Jeevan Shanti Policy & Taxation on Annuity
The tax treatment of pension plans is different from that of other life insurance plans. Section 80CCC allows for a deduction of up Rs 1.5 lakh on the premium.
The annuity payments, however, are taxable. The annuity that the annuitant receives under the plan becomes an income when calculating tax. Therefore, it becomes part of taxable income and attracts tax according to the annuitant’s income tax slab.
If the annuitant passes away, the nominee can avail of the policy benefits either in lumpsum or in annuity pay-outs or in monthly installments. However, the annuitant makes this choice and the nominee cannot change it. If the annuitant chooses for the death benefit to be paid out in lump sum or in installments over a period of 5, 10, or 15 years, the sum would be tax-free. This is allowed under Section 10 (10D) of the Income Tax Act.
Let’s say that the annuitant selects the annuity option for paying the death benefit to the nominee. For taxation purposes, the death benefit then becomes a premium payment for an immediate annuity plan where the nominee becomes the annuitant. The annuity rates would depend on the age of the nominee. The annuity payments the nominee then receives become taxable income. The tax would now depend on the nominee’s income tax slab.
Although annuities are a benefit that insurers pay under a life insurance plan, just like a maturity or death benefit, they are taxable. It is advisable to learn the tax implications of pension plans before buying one. For help with questions on policies, the cover they offer, taxation, etc., drop us a mail at firstname.lastname@example.org or give us a call at 96966 83999.