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Exemption under Section 10(10d) of the income tax act 1961

Exemption under Section 10(10d) of the income tax act 1961

Life insurance is not only beneficial to provide a financially secure future for your family but also helps to save money through income tax exemptions. Under section 80C of the Income Tax Act, 1961, the life insurance premiums that you pay during any financial year are exempted from your taxable income up to a maximum of INR 1.5 lakh.

Most individuals are aware of the benefits available under section 80C. However, tax benefits are also available under section 10(10D) of the Income Tax Act, 1961. Any income received from your life insurance policy is exempted from income tax under this section. This exemption is available for all types of life insurance policy payouts, without any upper limit and including bonuses and surrender value too.

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However, to enjoy tax savings under section 10(10D), the payout should fulfill the following criteria.

  • Benefit must be death payout
  • The benefit received is not for a policy issued under section 80DD (3) of the Income Tax Act, 1961.
  • The payout received should not be available under Keyman Insurance Policy
  • It must not be an annuity or pension plan payout
  • Benefit is not received under an employer-sponsored group life insurance scheme
  • The insurance premium paid during any year must not exceed 20% of the sum assured for policies purchased between 1st April 2003 and 30thApril 2012
  • If the policy is purchased after 30thApril 2012, the premium amount should not be more than10% of the sum assured
  • The insurance premium payable during any years should not exceed 15% of the sum assured for the policy. The same must be purchased on or after1stApril 2013, and the insurance must be for the life of any person, who is:
  • An individual with a disability or severe disability as per the section 80U of the Income Tax Act, 1961
  • Having any disease or ailment as specified in the rules under section 80DDB of the Income Tax Act, 1961

If the maturity benefit of your policy is not exempt under section 10(10D), then the amount you receive is subject to tax deducted at source (TDS) as per the following rules

  • If Permanent Account Number (PAN) is submitted, then 2%TDS on total maturity amount
  • If PAN is not submitted, then 20% TDS is applicable on the total amount

Several people have purchased insurance as a tax planning tool for several years. Insurance companies often use the availability of tax benefits while promoting their policies. These benefits are offered as an incentive to enable more individuals to procure insurance coverage.

It is recommended you clearly understand the different tax benefits available under various sections of the Income Tax Act, 1961. However, you must be careful and not make your purchase decision solely on the basis of the available tax benefits.

It is advisable you compare different life insurance plans offered by various insurers. You must understand the features, benefits, inclusions, and exclusions, and other terms and conditions before making your decision. Conducting extensive research online and using reliable sources to make the comparison will be beneficial. While choosing an insurance company, you need to consider the reputation and reliability of the insurer. It is important you opt for a company that offers superior customer service and higher claim settlement ratio to avoid complications in the future.

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