Section 10(10D): Exemptions and Amendments

Under Section 10(10D) of the Income Tax Act, 1961, residents can claim tax exemptions on life insurance payouts, including the sum assured and accrued bonus. These payouts include death and maturity benefits. There is no limit for deductions on tax under this section.

 

This tax exemption is also valid on the returns earned from a Unique Linked Insurance Plan (ULIP). The tax exemption under Section 10(10D) is applicable to all types of life insurance. These deductions are applicable to both Indian and foreign life insurance companies

1. Tax Rebate on Life Insurance Plan

Here’s an overview of the parameters a policyholder’s life insurance must meet to be eligible for tax rebate. 

Criteria	Tax Exemption Limit
Policy purchased between April 1, 2003, and March 31, 2012	Premiums paid in a single policy year must not exceed 20% of the sum assured
Policy purchased after April 1, 2012	Premium should not exceed 10% of the sum assured
Policy purchased after April 1, 2013*	Premium should not exceed 15% of the sum assured

*Note: To be eligible, the policyholder must also have an illness or severe disability.  

2. TDS on a Life Insurance Policy

If the amount received from the life insurance plan, not covered u/s 10(10D), exceeds ₹1 Lakh, 1% TDS is deducted by the insurer. The TDS deduction also takes place on the bonus payments.  On the other hand, if the sum is below ₹1 Lakh, there is no TDS exemption. This amount is fully taxable and you can claim credits for TDS deductions through your Income Tax Return (ITR) filings. 

3. Tax Liability of Single Premium Insurance Policies

A single premium policy requires the policyholder to pay the entire premium amount upfront at the policy's start. Given the higher premium of single premium policies compared to yearly premiums, it may more likely exceed the 10% limit under Section 10(10D).

However, if the minimum sum assured is 10 times the single premium paid for the entire tenure of the policy, it is tax-free. 

4. Requirements For Maturity Returns

The following criteria must be fulfilled by the maturity payout to enjoy the tax-saving benefits under this section:

• Benefit amount should be the death payout

• Benefit amount which has been received is not for an insurance policy issued u/s 80DD (3)  

• Payout should not have been available under the Keyman Insurance Policy

• Payout must not be linked to pension or an annuity  

• Benefit amount should not have been  received under a group insurance scheme

• Insurance premium payable during the financial year must not be more than 15%* of the assured sum 

 

*Note: The policy must have been bought on or after April 1, 2013, and it should be for the life of a person, who meets the below criteria:

1. Individual must be disabled or severely disabled according to Section 80U  

2. Individual must have a disease or an ailment which has been specified in the rules u/s 80DDB  

 

Under Section 10(10D), if the insurance policy's maturity amount is not tax-exempt,  TDS rules apply to the received amount as follows:

• If PAN card has been submitted: 10% TDS will be deducted from your total amount of maturity

• If PAN card has not been submitted: 20% TDS will be deducted from your total maturity amount

Here are a few exemptions under section 10(10D) of the Income Tax Act, 1961:

• Payout received for the Keyman Insurance Policy

• Benefits that are received under sections 80DDA(3) or 80DD(3) that are not applicable for deductions u/s 10(10D)

• Payout from insurance policy issued post April 1, 2012, with premium exceeding 10% of the sum assured

• Payout for policies issued from April 1, 2003, to March 31, 2012, with premiums exceeding 20% of the sum assured