It will be wise to surrender the plan now and invest the amount received in a pure investment product
08-Feb-2017 •Research Desk
I have ICICI Life Stage Pension fund which is due to mature in 2019. I am told that I will have to buy annuity from ICICI itself and the past returns of annuity has been around 4% only. Can I surrender the policy now and invest in mutual fund? Will it invite taxes? If yes, then will it be on the full amount or only on the interest earned? As an NRI, I have never claimed any exemptions for that.
ICICI Pru Lifestage is a unit-linked pension plan (ULPP), which is basically a pension scheme that combines insurance. On maturity of such pension plans, you can withdraw 1/3rd of the maturity amount as a tax free lump sum and the balance 2/3rd has to be necessarily converted into an annuity. The annuity option, while guaranteeing income at a fixed level, offers low returns, is not tax-efficient and locks up your money.
It will be wise to surrender the plan now and invest the amount received in pure investment products, like mutual funds, which provide better returns. Since you have completed the lock-in period on your ULPP, the surrender value should be the same as the prevailing fund value. Entire sum receivable on surrender of your pension plan is taxable. The entire surrender value will be added to your annual income and taxed as per your tax slab.