Section 10(10D)

What is Section 10(10D)?

Section 10(10D) of the Income Tax Act, 1961, offers tax exemption on amounts received under a life insurance policy. This includes benefits like death benefit, maturity benefit, and any accrued bonuses. In simpler terms, the money you receive from your life insurance policy (if it meets certain criteria) is not taxed by the government.

What Are The Tax Exemptions Under Section 10(10D)?

Here's a breakdown of the tax exemptions provided under Section 10(10D):

• Exemption on All Life Insurance Policy Claims: This section covers payouts from various types of life insurance policies, including term plans, whole life plans, and endowment plans.
• Tax-Free Maturity Benefit, Death Benefit, and Bonus: The entire amount received, including the sum assured, bonus (if any), and maturity benefit, is exempt from tax.

Important Note: Exemptions under Section 10(10D) apply only if the specific conditions are met. We'll explore these conditions in detail later.
 

Exclusions Under Section 10(10D)

Not all life insurance policy payouts qualify for tax exemption under Section 10(10D). Here are some exclusions to keep in mind:

• Keyman Insurance Policy: The benefit received from a keyman insurance policy (a policy taken on an employee's life by their employer) doesn't qualify for this exemption.
• Pension or Annuity Plans: Money received from pension or annuity plans doesn't fall under Section 10(10D).
• Group Insurance or Employer-Sponsored Schemes: Payouts from group insurance schemes or those provided by your employer aren't exempt under this section.
• ULIPs with High Annual Premiums (introduced in Budget 2021): Maturity benefits from Unit Linked Insurance Plans (ULIPs) issued on or after February 1, 2021, with an annual premium exceeding ₹2.5 lakh in any year, are not exempt under Section 10(10D). There's an exception for death benefit payouts though.
   

Eligibility Criteria For Tax Benefits Under Section 10(10D)

To avail the tax benefits under Section 10(10D), your life insurance policy must meet the following criteria:

Death Benefit: This is generally exempt irrespective of the premium paid.
Maturity Benefit: The policy shouldn't be issued under Section 80DD(3) of the Income Tax Act (policies for people with disabilities).
Premium Payment Limits: The premium paid in any single year should not exceed a specific limit of the sum assured:

• Policies purchased between April 1, 2003, and March 31, 2012: Maximum premium - 20% of the sum assured.
• Policies purchased after April 1, 2012: Maximum premium - 10% of the sum assured.
• Exception: Policies for individuals with disabilities (as defined under Section 80U) or suffering from specific diseases (as defined under Section 80DDB) purchased on or after April 1, 2013, can have a maximum premium of 15% of the sum assured.

Remember: These are the broad guidelines. It's advisable to consult with your tax advisor or insurance provider to confirm eligibility for your specific policy.
 

TDS For Life Insurance Policies

For policies that don't qualify for exemption under Section 10(10D), the insurance company deducts TDS (Tax Deducted at Source) at 1% if the payout exceeds ₹1 lakh. If your PAN (Permanent Account Number) is not submitted, the TDS rate is 20%. You can claim a refund for this TDS during income tax filing.

Tax On A Single Premium Insurance Policy

The maturity benefit received from a single-premium life insurance plan generally doesn't qualify for exemption under Section 10(10D). However, an exception exists if the minimum sum assured is at least 10 times the single premium amount paid.

Conclusion

Section 10(10D) offers a significant tax benefit for individuals who invest in life insurance policies. Understanding the eligibility criteria and exclusions can help you maximize this benefit and make informed financial decisions.