Section 10(10D) provides that any sum received from life insurance is tax free. However ,pension plans are not Life Insurance products . Therefore, whatever you receive , even after death , is not tax free unlike other life insurance products .
As per the offer documents of HDFC Unit Linked Penasion Plan , the tax benefits are u/s 80CCC. It means that the scheme has been approved u/s 10(23AAB) of the I T Act. It means that units , which is definitely a capital asset, if surrendered , gives rise to Long Term Capital Gains , but unlike other mututal fund units , shall not be tax free u/s 10(38) of the I T Act.
An important consideration ?
Before you start computing your gains, one very important consideration is “whether you had obtained deductions u/s 80CCC of the I T Act ?” if yes, then you need to know that in the year of surrender or receiveing pension , whether by you or by your nominee ,the amount of receipt toghether with interest or bonus ,to the extent of deduction claimed , shall be considered taxable income .
Read subsection 2 of section 80CCC is as under
(2) Where any amount standing to the credit of the assessee in a fund, referred to in sub-section (1) in respect of which a deduction has been allowed under sub-section (1), together with the interest or bonus accrued or credited to the assessees account, if any, is received by the assessee or his nominee
(a) on account of the surrender of the annuity plan whether in whole or in part, in any previous year, or
(b) as pension received from the annuity plan,
an amount equal to the whole of the amount referred to in clause (a) or clause (b) shall be deemed to be the income of the assessee or his nominee, as the case may be, in that previous year in which such withdrawal is made or, as the case may be, pension is received, and shall accordingly be chargeable to tax as income of that previous year.
If you have not claimed deduction u/s 80CCC
In that case , the computation will be for long term gains or losses on units purchased as per section 48 of the I T Act. The basic rule will be as under
Step 1 : For each months units , examine if the one year has elapsed. If yes, then the units will be long term asset. ( In your case , as you will surrender after 10 years, I feel only the purchase in last one year from surrender year , may not complete one year holding period in your hand , so they may give either long term or short term ).
Step 2 : Know the price at which it was purchased. say it is C.
Step 3 : Index cost should be found out by this formula C x Cost Inflation Index of the year of Sale
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Cost Inflation Index of the year of Buy
Step 4 : Find out the sale price by multiplying the price (surrender NAV ) with nos of units.
Capital Gains or Loss shall be Difference between Step 4 & Step 3.
No doubt , the computation is very tedious even for tax practitioner, therefore, it is better if you compute year wise . That is
- Note total cost and numbers of units purchased in a year.
- Indexation of the yearly cost
- Capital Gains or Loss shall be difference between Sale price for the year and index cost for the year.
In my opinion, if you take the pain of computing the gains of losses , there won’t be gains as the indexation of cost will eat away any gains or addition in NAV.There may be loss ultimately.
How to get data for purchase and sale?
Only solution is to contact the HDFC Insurance office or agents , they may provide your accounts details for full period . They have all the data . They can even provide you excel sheet.
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