LIC policy: Do you have to pay tax on maturity amount? Yes, only in this case

When you buy any insurance product, you must know how much deductions there will be due to the impact of tax payments and other charges. LIC is the biggest insurer with a majority of market share. Being the oldest insurance company in the country, it has a vast reach. Insurance policies come under various tax exemption laws, but most of us may not be aware that we pay some taxes on our LIC policies. We may get the benefit of tax exemption on LIC policies under various sections of the Income Tax Act. However, when we pay premium and at maturity, we may have to pay a certain percentage of service tax.

If the sum assured under the LIC policy is more than 10 times the annual premium for the maturity amount, it will be tax-free. If the sum assured under the LIC policy is less than 10 times the annual premium for the maturity amount then they have to pay tax in accordance with the tax slab applicable to the income of a person, said Shweta Jain, an independent CFP.
 
"Maturity and bonus amount for insurance is exempt under Sec 10 (10D). However, when the premium paid on the policy does not exceed 10% of the sum assured for policies issued after 1 April 2012 and 20% of sum assured for policies issued before 1 April 2012- it is taxable fully as per the person's tax slab," said Jain.

Jitendra Salonki, a Sebi-registered investment advisor, said that, "If sum assured under the LIC policy has to be more than 10 times the annual premium for the maturity amount it be tax free. However, pension products issued by the insurance companies are taxable. Of the maturity amount of pension policy, only 33% is tax free and for the rest amount, the taxpayers have to pay tax in accordance with the tax slabs."

However, insurance products attract GST. The policyholders have to pay GST on premiums.