LIC Jeevan Astha - taxable insurance?
LIC launched its much advertised policy, Jeevan Astha with great fanfare hoping to garner Rs.25000 crore in 45 days by delivering guaranteed returns.
However the scheme ended with much below expectations by garnering just one-third of target amount. The biggest attraction of the scheme was said to be the tax-free nature of investment thus making it suitable for those in higher income tax bracket.
But on finer study and analysis, it seems that the maturity proceeds of the scheme may not be tax-free after all, which may significantly affect the projected returns.
Insurance maturity proceeds are covered under Section 10(10D) which states that to qualify for tax-free status, the conditions should be that the policy should be of at least 5 years and that the premium amount must not exceed 20% of the sum assured amount.
While Jeevan Astha qualifies under first point, it falters on the second as the premium is roughly half or more than the sum assured amount.
When talked to LIC people, the reasoning given by them is that in the first year sum assured is six times premium. But even then the reasoning may fail, as the same amount is not throughout the lifetime of the policy.
Thus, it is highly possible that Jeevan Astha may qualify just as an investment like FD or bond with minimum risk cover and as such may not qualify for exemption on maturity.
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Amit Agarwal is a Google Developer Expert in Google Workspace and Google Apps Script. He holds an engineering degree in Computer Science (I.I.T.) and is the first professional blogger in India.