I have purchased an insurance policy in the year 2007 and was paying premium of around 32,000 per annum. After 3 years of mandatory premium payment, I surrendered my policy and received a surrendered amount of around INR 58,000/-. The total premium that I have paid for 3 years is around INR 96,000/-.
Do I have to pay income tax on the Surrendered value (INR 58,000/-) that I received, which is lesser than the paid premium?
No. Insurance is tax free.
It is tax free as is the case with premium payments. I hope you have applied deductions while paying the premiums on this policy.
Deduction U/s. 80C is available when the policy holder paid the premium on himself or spouse or children major/minor. The policy amount received from the Insurance Company at the time of maturity is not taxable under Income Tax as it treated as Capital Receipt. So, amount received on the surrender of the policy is taxable under “Income From Other Sources” and tax liability will be depend on tax rate applicable for that Assessment Year.
I was surfing the net & found this article related to your question
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http://elagaan.com/income-tax-blogs/what-you-must-know-about-tax-impact-surrender-insurance-policy
if life insurance policy is surrender after 2 years then maturity value/surrender value is not taxable in your hand.Infact it is never taxable .
However in case you have encashed your policy before completion of 2 years then you have to add back 80 c deduction earlier claimed ,But in your case three years has been elapsed so no need to worry amount is not taxable at all
Pls note that your sum assured in policy must be 5 time of premium paid yearly means sum assured must be 160000 rs