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Uncertainty Of Life And The Necessity Of Life Insurance |
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The family members of an insured are paid compensation by the life insurance company up to the maximum insured amount in case of his death, this amount is not taxable as per the Income Tax Act. |
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| Author: Suhani |
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The family of the deceased receives the complete insured amount or more on the demise of the insured(bread earner). The life insurance policies cover the financial risks associated with the earning member of the family, who was taken the insurance package. From the date of inception, in India life insurance policies are treated as the tool of tax benefit and rebate. But these policies are also equally beneficial keeping the uncertainty of life in mind.
On the demise of the insured(bread earner), the family has to file a claim with the concerned insurance company for the life insurance sum as per the policy terms. Any sum received as compensation is taxable under the Income-tax Act, 1961 (the Act), if the same is covered within the meaning of the word �income�. Speaking technically, the compensation claim received by the family cannot be said to be income in the hands of the recipients . This payment is also not being offered to compensate the loss of a particular source of income, but is being made for the loss of source of income itself.
Further, the Income Tax Act also contains a specific provision, under section 10(10D) specifying that any sum received under a life insurance policy, including the sum allocated by way of bonus on such policy, is not to be included within the purview of �income�. Therefore, the claim receipts by the family members are not taxable. If employed, on the demise of person, the employer may give lump sum gratuitous payment to the family of the deceased. This payment is not part of the employment contract and is made purely on compassionate and humanitarian grounds. As per the guidelines circulated by the Apex tax administrative authority of India - the Central Board of Direct Taxes (CBDT), any lump sum payment made gratuitously or by way of compensation or otherwise to widow/other legal heirs of the deceased employee is not taxable.
About Author
suhani has done her masters in Finance and is currently assisting sectors like Loans, Credit Cards, Insurance, Real Estate, Investment and Banking. For more information please visit www.paisawaisa.com
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