Whether Proceeds From Jeevan Aastha Policy Tax Exempt?

Whether maturity proceeds under LIC’s Jeevan Aastha policy are eligible to earn exemption u/s 10(10)d. if yes,under which circular.Salunkhe j b , Jalgaor
Jeevan Aastha policy is single premium and period is 5 or 10 Years. The sum assure is six times of first years premium and two times of second year premium.
The  provision u/s 10(10D ) says any sum received under a Life Insurance Policy is free from tax except certain types given there in –
i.                     keyman insurance policy and
ii.                    insurance policy where premium in a year exceeds 20 % of insured value or
iii.                   insurance receipt u/s 80DD
Para 10.3  of (CBDT) Circular No. 7/ 2003 dated September 5, 2003 .  says

10.3 The insurance policies with high premium and minimum risk covers are similar to deposits

or bonds. With a view to ensure that such insurance policies are treated at par with other investment schemes, amendments have been made in section 88 and clause (10D) of section 10.

The existing clause (10D) of section 10 has been substituted so as to provide that the exemption available under the said clause shall not be allowed on any sum received under an insurance policy issued on or after the 1st day of April, 2003, in respect of which the premium payable in any of the years during the term of the policy, exceeds twenty per cent of the actual capital sum assured. In view of this, the income accruing on such policies (not including the premium paid by the assessee) shall become taxable……….

In Jeevan Astha, the requirement that premium should not exceed 20 per cent of the sum assured is met in the first year only. However,from the second year onwards, the sum assured is twice the premium. Which means from second year , the condition is not fulfilled.  This creates confusion and opens Pandora box for interpretation and misinterpretation on the issue whether the condition u/s 10(10D) should be followed through out the policy terms or in the beginning only. What it means that the sum assured may be taxed on this ground as it may be interpreted that the sum assured related to years when the condition of 20 % is not fulfilled, accordingly exemption u/s 0/910///////D) may not be allowed.

Deduction u/s 80C

Premium paid for insurance policy is allowed deduction u/s 80C(2)  of the I T Act .However Section 80C(3) states

"the provisions of subsection (2) shall apply only to so much of any premium of other payment made on an insurance policy other than a contract for a deferred annuity as is not  in excess of twenty percent  of the actual capital sum assured"

Therefore, the premium only upto 20 % is allowable u/s 80C .