How do I report LIC payouts in my ITR?

The maturity proceeds of ₹1,13,580 was given on 9 December 2022. It included a final bonus of ₹16,500, while ₹3,075 was deducted as tax under section 194DA.

In my Form 26AS, LIC has combined all the payouts ( ₹61,500) for FY2022-23, the year of policy maturity. I’m uncertain whether this consolidated amount should be included in my income tax return (ITR) for the current fiscal.

If it should be included, what is the amount to be shown in the ITR and which ITR form is applicable here?

—Name withheld on request

We understand that you had purchased a life insurance policy from LIC (in the nature of pure life insurance) in 2013 and had made a one-time premium payment of ₹100,155 towards purchasing this policy. As per the proviso to section 10(10D) of the Income-tax Act, 1961, any sum received under a life insurance policy, including the sum allocated by way of bonus on such policy, shall be taxable where policy is issued on or after 1 April 2012 and the premium payable in any of the year during the policy term, exceeds 10% of the sum assured.

In the instant case, the one-time premium of ₹100,155 exceeds the threshold of 10% of sum assured (being ₹1.5 lakh). Thus, the sum received under the subject policy shall be taxable in your hands and no deduction under section 80C of the Act, is available towards the premium paid.

We understand that you have received gross maturity proceeds from the policy amounting to ₹1,61,655 (over FY2016-17, FY2019-20 and FY2022-23). Tax deducted at source (TDS) of ₹3,075 has been effected by LIC in FY 2022-23.

In such case, the difference between the gross maturity proceeds received by you under the policy and the total premium paid (overall amounting to ₹61,500), should be taxable as ‘income from other sources’ in your hands.

The proportionate taxability arose in the respective financial years when the respective maturity proceeds were received by you. It is assumed that the same was accordingly offered to tax in the earlier years. As the gross proceeds received by you in FY2022-23 is ₹116,655 (i.e. maturity proceeds of ₹113,580 plus TDS of ₹3,075), the same may be offered to tax in FY 2022-23, under the head “income from other sources”. The premium paid may be offset on a proportionate basis/ to the extent not claimed earlier.

As TDS has been deducted by LIC in FY2022-23 only, the entire TDS credit of ₹3,075 may accordingly be claimed in FY2022-23. Please note that in case the net income offered in FY2022-23 is lower than the taxable amount reported by the deductor, full TDS credit may be challenged by the tax authorities, which would then need to be explained basis the facts and documentation.

Please note that applicability of the ITR form depends on various other factors, such as tax-payer’s residential status, nature of income, type of assets held, etc. during the year. Assuming you are otherwise required to fill ITR-2 for FY 2022-23, the said income should be disclosed under Schedule OS-income from other sources.

Parizad Sirwalla is partner and head, global mobility services, tax, KPMG in India.

Updated: 27 Aug 2023, 09:47 PM IST