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Section 10(10D) of ITR, 1961

Life insurance is a great savings and protection financial instrument. Besides safeguarding the future of your loved ones financially, it helps in saving money by providing numerous tax benefits. As a policyholder, you must be aware of the fact that amount received through term life insurance is considered as income and is taxable. However, the Income Tax Act, 1961, provide exemptions on certain provisions including the amount received through life insurance. The crucial section under which deductions are provided is Section 10 (10D) of Income Tax Act, 1961. Continue reading to find more about it!

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What is Section 10(10D) of the ITR, 1961?

Under Section 10(D) of the Income Tax Act of 1961, an individual can avail of tax deductions on the total sum assured, which is the maturity and death benefit, and the accrued premium generated from the claims of life insurance plans. This exemption is applicable to numerous life insurance plans. Additionally, payments from Unit Linked Life Insurance plans whose total premium payable amount does not exceed Rs. 2.5 lakh in a financial year at maturity or at the time of partial withdrawal are eligible for tax exemptions under this section.

Eligibility Criteria For Section 10(10D) of ITR, 1961

Some of the conditions that must be satisfied in order to claim tax deductions under Section 10(10D) are listed below.

  • All types of life insurance claims are eligible for the tax deduction under this section.
  • Life insurance claim payouts including the death benefit, maturity benefit, and accrued bonus are applicable for tax deductions.
  • Under Section 10 (10D), tax deductions can be availed up to any maximum cap amount.
  • Both Indian and international life insurance companies provide tax exemptions under this section.

Exemption Provisions of Section 10(10D) of ITR, 1961

Some of the exemptions listed in Section 10(10D) of the Income Tax Act of 1961 are as follows.

  • Tax Rebate on Life Insurance Policy

  1. If the amount of premium that is paid within a year during the policy tenure for the policies bought between 1st April 2003 to 31st March 2012 does not exceed 20% of the sum assured is eligible for tax exemption.
  2. The premium payment amount should not exceed 10% of the sum assured if the insurance policy is bought after April 1, 2012.
  3. The exemption on the life insurance plan bought before 1st April 2013 should not be more than 15% of the sum assured if the insured is severely disabled or suffering from illness.
  4. Some of the disabilities including mental retardation, autism, and more are not included under Section 80U of the act.
  5. The conditions that qualify for this exemption are listed in section 80DDB of the Act.
  • TDS on a Life Insurance Policy

TDS at 1% will be deducted by the insurer since October 2014 before making the payment in case the benefit received from life insurance is greater than Rs. 1,00,000 are not eligible for the tax exemptions under Section 10(10D). Furthermore, TDS is deducted from bonus amounts. However, no TDS is taken into account if the amount raised is less than Rs. 1,00,000. Despite the fact that the amount received is completely taxable, one might claim credit for TDS by e-filing an income tax return.

  • Tax Liability of Single Premium Insurance Plan

According to Section 10(10D) of the Income Tax Act, the maturity amount received through a single premium insurance policy is not eligible for a tax deduction. However, the maturity benefit can only be tax-free in case the minimum sum assured of a single premium insurance plan is ten times the amount paid for the duration of the policy.

Requirements Under Section 10(10D) of the ITR, 1961 for Maturity Returns

Listed below are the terms and conditions that must be fulfilled by the maturity payout to receive tax savings benefits under Section 10(10D):

  • Benefit must be compensated upon death
  • The received benefit must not be availed of through the policy issued under Section 80DD (3) of the Income Tax Act, 1961.
  • The payout must have not been received under Keyman Insurance Policy.
  • A pension or annuity payout cannot be included.
  • Benefits are not availed under a group insurance plan sponsored by the employer.
  • The policies that are bought between 1 April 2003 to 30 April 2012 cannot pay the annual insurance premium of more than 20% of the sum assured.
  • If the policy is bought after April 30, 2012, the premium cannot exceed 10% of the insured amount.

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FAQs

  • What is the meaning of Tax Deducted at Source (TDS)?

    Tax Deducted at Source, or TDS, refers to the tax amount that is withheld from the individual’s income during a particular payment, including interest payments by banks, salary, a commission earned, and more. 

     

  • What are the important things that I should know about Section 10(10D) of the Income Tax Act, of 1961?

    The most important consideration that you should keep in mind regarding Section 10(10D) is that, in certain circumstances, the income you receive from the life insurance policy is subject to TDS in case the maturity benefit of your insurance policy for which you are eligible does not satisfy the exemptions of Section 10(10D): 

    • TDS upto 20% will be applicable to the maturity amount if an individual has not submitted their PAN. 
    • TDS upto 10% will is applied on the entire maturity benefit if PAN has been submitted. 
  • Who can avail of exemption under Section 10(10D)?

    Exemptions under Section 10(10D) of the Income Tax Act are provided on life insurance claims and also pertain to the payments made for unit-linked insurance policies. Both salaried and business individuals, HUFs, companies, charity trusts, groups of people, and others can request the exemption. 

     

  • What are other tax benefits provided under a life insurance policy?

    Under Section 80C of the Income Tax Act, 1961, you can avail yourself of the benefit of claiming the premium paid toward the insurance policy up to the maximum cap of Rs. 1.5 lakh. 

     

  • What is the maximum limit of tax exemption provided under Section 10(10D)?

    Under Section 10(10D) of the IT Act, 1961, there is no maximum value for which you can claim the deduction. 

     

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