Is LIC insurance policy halal or haram

I have already clarified in an earlier post that only term insurance can be considered in the subject of halal/ haram:
Is Life Insurance Halal in India

Building on that we can analyze the policies of India's favourite Insurance destination.
Many Muslims may have been subscribed to these policies both for tax benefits as well as the promising returns. Those that have been blessed by knowledge may have curiosity to research the term and may have invested in Unit Linked plans (ULIP).
But biggest problem of all Insurance based Investments is transparency. It is not at all easy to find where exactly your money is invested. Mutual Funds are so much better since you can see every percentage of where exactly it is invested.
Here we analyze the investment pattern which will conclude what is permissible and what is not. Although this article takes LIC for reference, but it is applicable to all insurance companies since they all have similar plans.


LIC Term Insurance Plans:

Plain simple explanation: Except Term Insurance (Assurance), rest all are not permissible.
The Term policies in LIC are named:

1. LIC's Anmol Jeevan 
2. LIC’s Amulya Jeevan
3. LIC eTerm policy

All are pure insurance and not investment that will give you return on maturity. Since these are not "money-back" plans there aren't any investments made.
These are the only ones fine; rest all are non-permissible. Let us explore each category and check the reasons for the same.


Endowment Plans:

Whether it is single premium or any other Xxxxx Jeevan plan it doesn't matter. The fact that you are getting money back points to some form of investment. So we only have to examine where the returns from investment are coming.
All plans of LIC invest into Government debt unless explicitly specified that the plan investments majorly in equity.
So government debt means loan to government and the profit is gets is the INTEREST it receives from government for those loans.
So all these plans are just Interest based investments and obviously not permissible.


Money Back Plans and Child Plans:
Exactly same investment pattern as Endowment plans. Hence Interest based investments and obviously not permissible.


Pension Plans:
Similar problem either Interest based (Jeevan Nidhi) or Annuity based (Jeevan Akshay).
Annuity is nothing but interest earnings.


ULIP (Unit Linked Insurance Plan):
This is one plan that is sold to many Muslims who might raise the interest objection to an insurance agent. Many Muslims are told that investment plan can be chosen and you can invest 100% into stock market which is halal.
However, things are not so simple.
And also here comes the comparison with Mutual Funds. In case of Mutual Funds I can easily search and get the complete investment breakup of every single rupee. I know how much is invested in equity in which sectors and in which exact company's stock. This helps in finding out how much of the MF investment is in haram stocks.
All this is very difficult in ULIP. You cannot easily get these details at all. And in case you can get the details, please check the stock market investments. Am sure you will find major part of investment in Financial Sectors especially bank stocks.
Also not 100% is allowed in stocks. Most plans will restrict it to 70-80% in stocks and rest will be in Government Securities or Money Market Instruments (both interest based)
And this is the reason why ULIP cannot be counted as halal.


In the end I would suggest to completely read the policy document carefully and research on the internet. Do not fall into the Insurance Agents trap or the Investment trap since it is clear that other than basic life insurance rest all is purely interest based income.

Halal Tax Saving by House Rent or HRA

There are certain legal conditions to be met before you can claim HRA deduction/ exemption. I have tried to make it as simple as possible.

But first discuss housing aspect:

1. You or your spouse or your minor child do not own a house. Even if your parents own a house, HRA can be claimed by giving them the rent and which will be part of parent’s income.
2. You own a house in one place and do not live there but live in a different place.
3. You have bought a house but have no possession yet.
4. You have rent receipts or legal agreement for the same.

I have not included home loan conditions above, since I assume a Muslim won’t be taking one.

For HRA to work there are 2 options:

     A.      You receive HRA component in your salary: Section 10 (13A) exemption

     B.      Your don’t receive HRA component or are self-employed: Section 80GG deduction

You can use either of these options, not both.

Basic Definitions used in calculations

Financial Year: A year starting from April 1 of one year and ending at March 31 of next year.

Basic Salary:      Basic component + any Dearness Allowance + any Fixed Commission

Total Income:   Entire amount earned during year minus all tax deductions and exemptions. Amount earned need not be just salary. But any additional perks or income from other sources or financial instruments. Basically just about anything that contributes wealth to your kitty. All tax deductions and tax saving exemptions need to be subtracted except the Section 80GG one for rent.

Section 10 (13A): HRA component in salary.

This is simple enough and is discussed on several sites. The amount of exemption available for a financial year is minimum of the following:

1.       HRA received in salary.

2.       Rent paid minus 10% of Basic Salary.

3.       50% of Basic Salary received for Mumbai, Delhi, Chennai, Kolkata or 40% of Basic for other places.

Section 80GG: No HRA component.

This is minimum of the following for a financial year:

1.       Rs. 24000 (in case deduction is for less than a year, calculate at Rs. 2000 per month).

2.       Rent paid minus 10% of Total Income.

3.       25% of Total Income.

Also in this case an additional Form 10BA has to be furnished. Note here for almost everyone the amount comes to first option only because nowadays, anyone would be a paying a rent of more than Rs. 2000 per month.

Example:

A person living in Delhi receives following:

Basic Salary:      Rs. 10,000 p.m. = Rs. 120,000 p.a.

Total Income:      Rs. 30,000 p.m. = Rs. 360,000 p.a.

Rent Paid:          Rs.   7,000 p.m. = Rs.   84,000 p.a.

If case is of employee getting HRA as part of Total Income,

HRA Received:    Rs.   4,000 p.m. = Rs.  48,000 p.a.

So Section 10 exemption will be minimum of:

1.       HRA received = Rs. 48,000

2.       Rent paid (Rs. 84,000) minus 10% of Basic (Rs. 12,000) = Rs. 72,000

3.       50% of Basic = Rs. 60,000

i.e. Rs. 48,000

In case no HRA, calculation as per Section 80GG:

1.       Rs. 24,000

2.       Rent paid (Rs. 84,000) minus 10% of Total (Rs. 36,000) = Rs. 48,000

3.       25% of Total = Rs. 120,000

So here minimum is Rs. 24,000

Hence note that receiving HRA in salary is always better since using Section 80GG only rent up to Rs. 2000 per month is covered which is extremely less amount.

Halal Tax Saving in India: Minimize your tax with no Investments

In the previous posts I discussed the status of Tax Saving Investments.
There are ways to at least minimize some impact of taxes. Here are some of them.
Will write about individual ones in detail is sometime, insha-allah. Update: Added articles of couple of topics.

Initial seven options are ones that every single salaried person can make use of; remaining are case-specific:

1. HRA (House Rent Agreement)
2. Internet and Telephone Rental
• Landline phone
• Mobile phone
• Broadband/ ADSL Internet
3. Medical Allowance
4. Insurance (maybe or may not be valid)
• Pure Life Insurance (Term Insurance)
• Self/Spouse/Children Mediclaim
• Parental Mediclaim
5. Donations to registered NGO/ Madrasas'/ Relief Funds/ Charitable Trusts.
6. Conveyance Expenses
7. LTA (Leave Travel Allowance)
8. Meal Coupons (and maybe some Gift Coupons)
9. School Fees of children.
10. Donation to political parties (I hope no one uses this one:))
11. Medical treatment for self in case of catastrophic illness/ disability.
12. Medical treatment for dependent handicapped/ disabled.

Pray for the taxes that you pay

I really mean it. Even if you adopt all of the measures am suggesting below you would certainly pay a good amount of taxes. Not to mention the huge amount of indirect taxes that everyone has to pay and there is no escape. (Indirect taxes are taxes on goods and services. So whenever you buy something it has a big chunk of tax built into it. Like say a cellphone costing 10K could have 2-4K of tax in it. So this unknown tax is actually also huge in number.)

OK back to the main point. Suppose you end up paying 50K tax in a year (not taking into account your indirect taxes). Now this is a good amount. Even your Zakat will be much less than this (unless you have inherited some good amount of wealth). 

We all know how efficient and ethical our governments are. If they allot 100 crores to a project, on an average maybe 20 crores might be used for the exact purpose; rest being pocketed for the luxuries and black money of the politicians. 

Now your hard-earned money should not go to feed such people's riches. So you should pray to Allah that the taxes paid by you end up in the good things like building school, hospitals, empowering the poor and disabled, salaries of workers, relief-work, scholarships etc.
Well, that it the only thing that we can do for the taxes we pay. 

Halal Tax Saving Investments in India

This article only discusses tax saving through investments; it doesn't discuss about other tax saving options. There are ways to reduce taxes through deductions and its discussed another article:
Halal Tax Saving

Let me get straight to the point, I feel THERE IS NO HALAL TAX SAVING INVESTMENT IN INDIA.
You can continue reading further to know the reasons for the same.
I am not even going into the stupid arguments that interest is allowed, small percentages are fine, interest in not usury, riba stands only for usury and not interest. Allah has given us brains to think and the Quran/ Sunna as a guide; every person is capable of investigating and finding out what is allowed and what is not.


Interest Based Investments

All these schemes are Interest based ones and hence obviously haram.

1. PPF  (Public Provident Fund )
2. NSC/ NSS (National Saving Scheme/ Certificate)
3. KVP (Kisan Vikas Patra)
4. SCSS (Senior Citizens Saving Scheme)
5. FD (Fixed Deposits) 
6. TD (Post Office Time Deposit)
7. Infrastructure Bonds

Insurance

Pure Life Assurance and Medical Insurance (for self and parents) maybe fine and is a good tax deduction; but it is not literally an investment. You do not get any returns directly.
Most of the insurance schemes in India are investment based and none are halal. The following popular ones have Interest components:

1. Guaranteed 
2. Highest NAV
3. Endowment
4. Balanced
5. Any of the Jeevan ****** from LIC

More details here:
Is Life Insurance Halal in India Is LIC insurance policy halal or haram

ULIP (Unit Linked Insurance Plan) These are somewhat similar to Mutual Funds and they can have Debt as well as Equity components. The Debt ones are obviously not allowed as that falls under Interest. The Equity one is also not allowed because of the following reason:

• You have no idea about which Stocks the insurance company invests the ULIP funds as they do not reveal where they have invested.
• Rest of the points are same as ELSS below.

I have discussed some "Shariah compliant Ulip" here: Shariah compliant Ulip/ Pension/ Insurance Fund

Pension Schemes

Pension Schemes can take various forms and are usually from Government, Insurance Companies and Mutual Funds. However, all these are heavily into Interest based investing and hence not allowed.

1. NPS (New Pension Scheme)
2. ULPP (Unit Linked Pension Plan)
3. Pension Fund from Insurances
4. Pension Fund from Mutual Funds

ELSS (Equity Linked Savings Scheme)

Probably the most popular among Muslims as a non-interest based investment. Unfortunately this is not halal either. They do the following haram investments

• Although they are equity based, some portion (about 10-20%) will be invested in Debt instruments.
• Usually they invest a significant portion in shares of Financial Instituitions like Banks, NBFC, etc.
• There is nothing stopping them from investing in completely haram sectors like Alcohol, Sugar, Media & Entertainment, Tobacco.
• For capital intensive sectors like Infrastructure, Power, Machinery, Oil & Gas each company has to be evaluated carefully as many are heavily into debt all the time (i.e. paying huge amount of interests)
• Cash rich companies like IT, PSU's have huge amounts of idle cash often invested in Banks/ Bonds and other short-term investments. This pays them a good amount of interest income.

Even if you ignore the last 2 points; just go through the Investment Portfolio of any ELSS Mutual Fund and you will see that nearly 30%-50% comes under haram industries.


Home Loans

If you have taken a Home loan from a Bank/ NBFC, you are surely paying interest and by Shariaah both the interest payer and receiver are equally sinful. The only way this can be made halal for tax purposes is that you take a loan from your father/ mother or some close relative with 0% interest and just show to the government that you are paying them interest.


Compulsory Investments

The following are Tax Saving Investments for salaried employees and are usually compulsory; so you do end up forcefully investing in them.

1. EPF (Employee Provident Fund)
2. Superannuation.

Since they are forced over you, you can't do anything about it. However, whenever you resign you can withdraw the same.

Conclusion

So what do you do? It's simple you pay the Tax. What else can you do? It might be haram to pay such high levels of tax, since there is no basis in religion for such high taxes and much of the money doesn't get used up in the right way. 

However, to prevent one haram that is forced upon you, it is not right to willfully commit another haram by investing in non-Shariaah way. Allah knows best.
And don't forget to read other ways of tax saving: Halal Tax Saving