It is suggested that LIP be treated as a capital asset falling within the definition of “property” under section 2(14) of the Act. Indexation benefit (for premiums paid) will take care of inflationary impact – resulting in parity with other capital asset (SUGGESTION FOR RATIONALIZATION OF THE PROVISIONS OF DIRECT TAX LAWS)
Issue: Whether LIP can be regarded as capital asset?
Any sum received under life insurance policies (‘LIPs’) not exempt under section 10(10D) are taxable currently. Deduction of only premium while computing the net income / loss after surrender / withdrawal of policy doesn’t take care of inflation resulting in higher taxability.