TAX FORUM: QUESTIONS & ANSWERS
Monthly Income Plan
I am enclosing a brochure issued by one of the insurers giving an annuity policy requiring subscription in a scheme known as Monthly Income Plan in 5-10 years with right to annual income for 15 years from the sixth or
eleventh year. Though the brochure is silent as to income tax implications, the corporate agent including an officer of the bank says that the annual income will be tax-free under Sec. 10(10D), while the investment will qualify for deduction under Sec. 80C.
The advice given to the reader does not appear to be correct. The policy is in the nature of one covered under Sec. 80CCC titled “Deduction in respect of contribution to certain pension funds” if it satisfies the conditions of such policy conforming to the requirement of Sec. 10(23AAB) approved by the Controller of Insurance or Insurance Regulatory and Development Authority (IRDA). The amount subscribed towards such policy is deductible under Sec. 80CCC but the amount received by way of annuity or lump sum is taxable. It is not deductible under Sec. 80C as wrongly inferred. If it is a life policy, including a contract for deferred annuity, deduction is available under Sec. 80C for the premia paid to such policy, subject to the conditions thereunder with immunity from tax on the amount received back under Sec. 10(10D). The brochure enclosed by the reader describes the policy terms, but the condition whether it satisfies Sec. 10(23AAB) has not been indicated. Nor is there any reference to tax implications.
It is for the reader to require further information in the light of the above law. More information is required before tax implications could be indicated. Till such time, the oral promise of a tax-free return, while offering deduction for the payment, should not prima facie be taken as correct.
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