Each one of us has different rationale or purpose for availing insurance. The reasons could vary from securing ones retirement, meeting childrens education or marriage expenses or to secure ones life. Therefore, when the proposed Direct Tax Code (DTC) becomes effective from April 1, 2012, one should assess the impact of insurance plans and take informed decisions while continuing with existing investments and for future plans.

Under DTC, the amount received under a life insurance policy would be taxed on maturity as normal income, if the premium payable in any year, during the policy term exceeds 5% of the sum assured. As per the current taxation laws, receipts from a life insurance policy are exempt from tax provided the premium payable for any of the years does not exceed 20% of the sum assured.

In case of policies which are not exempt, the amount of premium paid (up to the date of receipt of the proceeds) would be allowed as a deduction from the proceeds received under the insurance policy. i.e. if the amount received on maturity is Rs 5,00,000 and total premium paid is Rs 2,20,000, the amount taxable will be Rs 2,80,000 (5,00,0002,20,000). However, this deduction would not be available to any amount of premium, which has already been allowed as a deduction in any previous financial year.

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