Section 10(10D): When Is Life Insurance Maturity Taxable?
Section 10(10D) of the Income Tax Act exempts the maturity proceeds of a life insurance policy from tax — but only if certain conditions are met.
WHEN IS MATURITY EXEMPT
For policies issued after 1 April 2012, the annual premium must not exceed 10% of the sum assured. For policies issued before that date, the limit is 20%. If the premium exceeds this percentage in any year during the policy term, the entire exemption under Section 10(10D) is lost for that policy.
Exception: For policies issued on or after 1 April 2013 to persons with disability under Section 80U or specified diseases under Section 80DDB, the premium limit is relaxed to 15% of the sum assured.
RS 5 LAKH CAP FOR NON-LINKED POLICIES (FROM 1 APRIL 2023)
For non-linked life insurance policies (traditional endowment, money-back plans) issued on or after 1 April 2023, an additional condition applies. If the aggregate annual premium across all such policies exceeds Rs 5 lakh, the income computed on such policies (maturity proceeds minus total premiums paid) becomes taxable as income from other sources under Section 56(2)(xiii). Policies within the Rs 5 lakh aggregate limit remain exempt.
ULIP RS 2.5 LAKH CAP (FROM 1 FEBRUARY 2021)
Unit Linked Insurance Plans (ULIPs) issued on or after 1 February 2021 with annual premium exceeding Rs 2.5 lakh are treated as capital assets. The aggregate premium across all such ULIPs is considered. Those exceeding the limit are taxed as capital gains, not exempt under Section 10(10D). ULIPs within the Rs 2.5 lakh limit continue to enjoy exemption.
DEATH BENEFIT IS ALWAYS EXEMPT
The sum received by a nominee or legal heir on the death of the insured is fully exempt under Section 10(10D). No conditions apply to death claims.
PRACTICAL TIP
Before buying a new traditional life insurance policy, check whether your total annual premium across all non-linked policies will cross Rs 5 lakh. If it will, the maturity proceeds of that new policy will be taxable. For high-premium needs, consider term insurance combined with separate investments.
WHEN IS MATURITY EXEMPT
For policies issued after 1 April 2012, the annual premium must not exceed 10% of the sum assured. For policies issued before that date, the limit is 20%. If the premium exceeds this percentage in any year during the policy term, the entire exemption under Section 10(10D) is lost for that policy.
Exception: For policies issued on or after 1 April 2013 to persons with disability under Section 80U or specified diseases under Section 80DDB, the premium limit is relaxed to 15% of the sum assured.
RS 5 LAKH CAP FOR NON-LINKED POLICIES (FROM 1 APRIL 2023)
For non-linked life insurance policies (traditional endowment, money-back plans) issued on or after 1 April 2023, an additional condition applies. If the aggregate annual premium across all such policies exceeds Rs 5 lakh, the income computed on such policies (maturity proceeds minus total premiums paid) becomes taxable as income from other sources under Section 56(2)(xiii). Policies within the Rs 5 lakh aggregate limit remain exempt.
ULIP RS 2.5 LAKH CAP (FROM 1 FEBRUARY 2021)
Unit Linked Insurance Plans (ULIPs) issued on or after 1 February 2021 with annual premium exceeding Rs 2.5 lakh are treated as capital assets. The aggregate premium across all such ULIPs is considered. Those exceeding the limit are taxed as capital gains, not exempt under Section 10(10D). ULIPs within the Rs 2.5 lakh limit continue to enjoy exemption.
DEATH BENEFIT IS ALWAYS EXEMPT
The sum received by a nominee or legal heir on the death of the insured is fully exempt under Section 10(10D). No conditions apply to death claims.
PRACTICAL TIP
Before buying a new traditional life insurance policy, check whether your total annual premium across all non-linked policies will cross Rs 5 lakh. If it will, the maturity proceeds of that new policy will be taxable. For high-premium needs, consider term insurance combined with separate investments.
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Disclaimer: This content is the author's personal opinion and analysis. It does not constitute professional tax or legal advice. Consult a qualified professional for specific advice on your situation.
Comments (4)
Track aggregate turnover from day 1. Solid advice.
Voluntary registration makes sense if your customers are GST-registered businesses
Section 24 list is comprehensive. Good job covering ECO and agents.
Rs 40 lakh for goods, Rs 20 lakh for services. Clean summary.