The death benefits paid out by a regular income benefit policy are treated in the hands of the deceased's dependants for tax purposes as?

The death benefits paid out by a regular income benefit policy are classified as capital instalments of the sum assured for tax purposes. This means that when the death benefit is received by the dependants, it is not treated as income but rather as capital. As such, these benefits do not incur income tax, which is a critical distinction for the financial planning of beneficiaries.

The focus on capital instalments emphasizes that the proceeds from the life policy represent a return of the sum assured, intended to support the dependants in their time of need rather than generating taxable income. This characterization allows beneficiaries to receive these funds without immediate tax implications, which can be especially beneficial during a period of financial uncertainty following a loved one’s passing.

Understanding this treatment is essential for those involved in life assurance policies, as it directly influences the financial implications for both the policyholder and their beneficiaries. It's important to note that tax regulations can vary by jurisdiction, so always consider consulting with a tax professional for specific cases.