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Exemptions for LIC Proceeds and Leave Encashment under Income Tax Act’1961


In this fast moving world where due to the food habits the future of the people are very uncertain. To tackle these type of futuristic problems, we end up taking LIC policy which not only protect our family from the financial problems after the death of the person also provide us the deduction u/s 80C of the Income Tax Act’1961.

Every employer wants their employees to take less holidays in the year and hence, they provide them with the facility to encash their leaves which they have not taken during the specified period.

Do you know receiving these might be taxable?
Have u also received any leave encashment and LIC proceeds and worried about how to find the taxable amount of the receipt? If yes, then let’s find out some of the exemptions listed under section 10 with the help of various flowcharts and explanations.

We will be discussing about the below mentioned exemptions: 

  1. Maturity Proceeds Received under Life Insurance Policy {10(10D)}
    We all are aware of the deduction that we can claim under section 80C for the Investment in the Life Insurance policy and here we will be discussing about the maturity proceeds received from the policy.
    Any amount including bonus received as maturity proceeds of LIC after the death of policyholder is exempt irrespective of the fact when it is taken. However, any proceeds received in the lifetime is taxable as follows:

* In case of policy taken for a person with disability u/s 80U after 1st April, 2013 and premium paid does not exceed 15% of sum assured then the maturity proceeds are exempt u/s 10(10D).

Note: TDS u/s 194DA is also applicable in case of premium exceed the prescribed limits of 10%/20%/15% respectively.

  1. Leave Encashment (10{10AA})
    Leave Encashment is the sum given to the employee for the leaves that were entitled to the employee but he did not avail during his employment. The amount received as leave salary is taxable in the hands of the employee. However, the employee is allowed the exemption under section 10(10AA) as per the below flow chart:

Any amount received in the course of employment is fully taxable in the hands of the employee under the head “Income from Salary”.

Here at AJSH, we assist and consult our clients about these and various other deductions to help them in proper tax planning. Further, we also assist in setting up your business in India, accounting, bookkeeping, payroll, auditing, taxation, secretarial compliances, and trademark registration, business structuring and advisory services. If you require any assistance or wish to know more in this regard, kindly contact us.


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