Life insurance is a great tool for financial planning; it not only helps you create wealth, but also offers tax exemption. While most of us are aware of the tax benefits offered under section 80C of the Income Tax Act, many are unaware of the benefits offered under section 10(10D). For all types of life insurance policies, tax exemption is offered and it has no limit on the coverage amount and the bonus as well. Any income generated through life insurance is eligible for tax benefits under section 10(10D).
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What is section 10(10D) of the Income Tax Act?
Section 10(10D) of the income tax act refers to the tax exemption offered under life insurance i.e. the sum assured as well as the accrued bonus received as maturity or death benefit. This exemption can be claimed by hindu undivided families, associations, trusts, companies, foreign companies, etc.
Exemption provisions under section 10(10D)
TDS on life insurance policy
1% TDS will be applicable by the insurer in case the life insurance amount exceeds Rs. 1, 00,000 and if the policy does not fall under exemption u/s 10(10D). TDS deduction is applicable to bonuses as well. TDS will not be deducted if the received amount is below Rs. 1,00,000.
Tax rebate on life insurance
Tax exemption under this section can be claimed in case the premiums paid do not exceed 20% of the sum assured from April 1, 2003 to March 31, 2012. In case the life insurance policy is purchased after April 1. 2012 then the premium amount should not exceed 10% of the sum assured.
If the policyholder is severely disabled or is suffering from any disease then the premium should not exceed 15% of the sum assured. Disabilities refer to conditions like autism, retardation, etc.
Tax liability on single premium policies
The maturity amount of the single premium policy can be taxed and is not eligible for deduction under section 10(10D). The maturity amount is tax free only if the minimum sum assured is 10x the single premium sum paid for the tenure.
Important requirements for maturity returns under section 10(10D)
The payout should not have been under keyman insurance policy
- It should also not be annuity or pension plan payout
- It should be a death benefit amount
- The benefit received is not for an insurance policy issued u/s 80DD?(1) of the Income Tax, Act, 1961
- The benefit amount should have not been paid under group insurance scheme
- The premium amount payable under any financial year should not be more than 15% of the sum assured. The policy must have been bought on or after April 1, 2013 and it should be for a person who is:
- Disabled or severely disabled under section 80U of the Income Tax Act
- Has a disease or an ailment specified in the rules u/s 80DDB of the IT Act
If the maturity amount is not tax exempt u/s section 10(10D), the amount received will be subject to TDS as per the below rules:
- If the PAN number is submitted then 10% TDS will be deducted from total amount of maturity
- If the PAN number is not submitted then 20% TDS will be deducted from total amount of maturity
Budget 2012 Amendment
The Budget 2021 announcement specified that tax exemption is not applicable for ULIPs issued on or after 1 Feb 2021 if the annual premium payment exceeds Rs. 2.5 lakh in any year during the policy term.
Budget 2023: removal of exemption on high value insurance policies
In the latest Budget 2023 announcement, the finance minister announced the removal of exemption from high value insurance policies having aggregate premiums up to Rs. 5 lakhs. The exemption will not impact the policies issued till March 31, 2023.
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What are the maturity return requirements under section 10(10D)?
Given below are the maturity return requirements under section 10(10D)
- Compensation should be paid upon death
- The coverage amount should not be paid for keyman insurance
- Benefits are not obtained under group insurance
- It is not a retirement or annuity payout
Is there any deduction limit under section 10(10D)?
There is no deduction limit under section 10(10D)
What is the maximum tax exemption I can enjoy under section 10(10D)?
There is no capping on the maximum tax exemption you can receive under section 10(10D).