Life insurance not only provides financial security but also helps mitigate tax liabilities through exemptions on income tax. Amongst several tax saving measures, several deductions under the Income Tax (IT) Act, 1961, are some of the best.
Section 10(10D) of the IT Act, 1961 provides tax savings benefits. The income amount you receive from your life insurance policy can be exempted from tax under this section. The deductions under this are available for every kind of life insurance plan payout.
Since there is no involvement of any upper limit under this section and it comprises several bonuses and surrender values, Section 10(10D) is one of the most beneficial sections of the IT Act. Read on to know more about this section so that you can maximise your tax-saving benefits.
U/S 10(10D) of the IT Act, 1961, a resident individual can claim the tax exemptions on the assured sum and the accrued bonus received through their life insurance plan payouts (death or maturity benefits), if any. This tax exemption is also valid on the returns earned from a Unique Linked Insurance Plan (ULIP). It is also present in every form related to life insurance policy claims.
Hindu Undivided Families (HUFs), salaried and non-salaried individuals, corporations, foreign companies, Body of Persons, and others are eligible for these tax exemptions.
A key amendment was introduced during the Budget 2021 under the 4th proviso to Section 10(10D). This is applicable to ULIPs (Unit Linked Insurance Plans) with a high annual premium amount. According to this amendment, exemption under section 10(10D) is not applicable to the ULIPs which have been issued on or after February 1, 2021. This is valid if the annual premium amount which is payable is more than Rs. 2,50,000 in any particular financial year during the tenure of the policy.
The announcement of the Budget also introduced a fifth proviso covering the instances of a single individual paying the premiums for several ULIPs. The annual premium payment limit of Rs. 2,50,000 can also be applicable in such a case. Hence, according to this section’s amendment, the policyholder is eligible to claim the benefits under section 10(10D) only for the insurance plans in which the aggregate annual premium paid is less than Rs. 2,50,000. However, such exclusions are not applicable in cases of ULIP payouts which have been received as a death benefit of the person who has been insured.
Here are a few conditions which you must fulfil to be eligible for claiming tax deductions u/s 10(10D):
Tax deductions under this section are applicable to every type of life insurance claim payouts.
Tax deductions under this section is available for life insurance claim amounts like maturity and death benefit, including all the accrued bonuses.
There is no limit to the tax benefits that can be availed u/s 10(10D) of the Income Tax Act, 1961.
Deductions are applicable to both Indian and foreign life insurance companies.
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 by individuals under the Section 80DDA(3) or 80DD(3) of the IT Act, 1961 that are not applicable for tax deductions under this section.
Payout that was received from an insurance policy issued after April 1, 2012, where the premium exceeded 10% of the sum assured for the policy period.
Payout that is received for an insurance policy that was issued between April 1, 2003, to March 31, 2012, where the premium exceeded 20% of the sum assured for the policy period.
Term insurance is a form of life insurance policy that is only active for a predetermined period of time. If during this time, the insured individual passes away, then the benefit is paid out to the nominee.
You can not only enjoy the tax benefits under this section for Term Insurance Plan but you are also eligible for any deductions on the premium paid, under Section 80C.
Tax deductions are applicable across all life insurance policy claims. This also comprises accrued bonuses. There is no limit for deductions on tax under this section.
Now that you are aware of the tax-saving benefits of the Section 10(10D), you do not have to fret about the future of your family. It is, however, strongly recommended to go through the policy documents carefully and understand the terms and conditions before buying the plan.
Maximum number of people have been buying insurance as a tax-saving or tax-planning tool for years now. However, the real reason for such benefits is to provide an incentive to enable more individuals to buy insurance coverages. Hence, it is advisable that you pay under the various tax benefits which are available under several sections in the Income Tax Act, 1961.
One other tax benefit that you can enjoy on your life insurance policy is under Section 80C of the IT Act, 1961. The premium that you pay towards the policy can be claimed under this section and the maximum cap is Rs.1.5 lakhs.
There is no limit for the tax deductions under Section 10 (10D) of Income Tax Act, 1961.
There is no maximum cap to the amount that you can claim for deduction under Section 10(10D) of the IT Act, 1961.
Term insurance is a form of life insurance policy that is only active for a predetermined period of time. If during this time, the insured individual passes away, then the benefit is paid out to the nominee.
Tax Deducted at Source or TDS is the tax that is deducted from the income during a specific payment. It is applicable to a variety of payments such as an interest payment by banks, salary, earned commission, etc. where the individual receiving this income has to pay income tax.