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Taxation on Surrender Value

The surrender value of an insurance policy is to be added to your taxable income & taxed as per your slab rate

Around June 2009, I had invested in a pension policy from ICICI with a premium of about ₹25000 annually. The premium payments enabled me to avail of tax benefits which I claimed every year. Due to various reasons I surrendered the policy this year just ahead of the annual premium due date and ICICI paid me a lumpsum after deducting surrender charges. The final amount I received was close to ₹1.5 lacs. Since I have paid a total of ₹1.25 lacs in 5 premium payments (starting 2009 and also availed tax benefits on the same), I would like to know whether this gain (around ₹25000) is subject to tax and how to calculate the tax payable. - Iyer MS

The surrender value of this plan which in your case is ₹1.50 lakh should be added to your income as income from other sources and taxed as per your tax slab rate. On top of it as you have withdrawn from the policy, you need to pay tax on all the premiums, on which you have availed section 80C deduction in past five years.



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