Section 10(10D) of the Income Tax Act

Section 10 (10D) of the Income Tax Act, 1961, deals with tax exemption on the returns earned on maturity of a life insurance policy or on the death of the insured. This section allows individuals to claim tax exemptions on premiums paid for policies purchased after April 1, 2012. This allows for tax deductions on all kinds of life insurance plans, with no limit on the amount claimed.

The IT Act's Section 10 enumerates many different types of incomes that are not subject to income tax in India. There are many incomes that are not taxable. These exemptions are offered to support certain endeavours or assist specific taxpayer categories.

Revenue from agriculture, gifts from family members, money from scholarships, and other types of income are some examples of income excluded under Section 10 of the Income Tax Act.

What is Section 10(10D) of Income Tax Act

Section 10(10D) of the Income Tax Act offers tax exemption on the death benefit received  by the policyholder's nominee and the maturity benefit received by the policyholder on maturity of the policy. Both of these benefits are entirely exempt from taxation.

Section 10(10D) Examples -

Revenue from agriculture, gifts from family members, money from scholarships, and other types of income are some Section 10(10D) examples of income excluded under Section 10 of the Income Tax Act.

Tax Benefits of Term Insurance under Section 10 (10D)

The following are the main benefits of term insurance related to Section 10(10D):

• Tax-free Death Benefit: Beneficiaries receive a death benefit that is entirely tax-free, offering them financial security free from tax obligations.
• Tax Deduction on Premiums: Up to Rs 1.5 lakh in annual tax deductions are available for term insurance premiums paid under Section 80C.
• Large Coverage, Low Cost: Term insurance offers coverage for large amounts at affordable rates.
• Security of Income for Nominees: Ensures beneficiaries receive the entire amount as promised without any tax deductions.
• No Maximum Exemption Amount: There is no maximum tax exemption amount for the death benefit.

Section 10(10D) of Income Tax Act: Terms and conditions

Let’s look at the terms and conditions applicable for tax deductions under Section 10(10D) here below-

For life insurance policies bought between April 1, 2003, and March 31, 2012, the premium paid in any given year during the plan's lifespan cannot exceed 20% of the sum assured (SA).

• After April 1, 2012, the premium paid for life insurance policies purchased cannot exceed 10% of the insured amount.
• Tax deductions are prohibited for any claims, including prizes, life insurance, and maturity benefits.
• Keyman refers to an important person in the company. Section 10 (10D) does not exempt the death and maturity benefits of the key person’s insurance plan from income tax. Businesses or organisations can protect themselves against financial loss if an "important" employee suddenly passes away by investing in a Keyman insurance plan.
• If the policyholder suffers from a severe disease, is seriously disabled, or if the policy was issued after April 1, 2013, the premium paid up to 15% of the SA will be eligible for tax deduction.  

Section 10(10D) of Income Tax Act: Eligibility Criteria

In light of the above terms and circumstances, the following are the requirements for claiming tax deductions under Section 10(10D):

• This section allows tax deductions for payouts from any kind of life insurance claim
• This clause allows for the tax deduction of a life insurance policy's maturity and death benefits, as well as any bonuses that may have been accumulated
• There is no upper limit to the tax benefits granted under the Income Tax Act, Section 10(10D)
• Deductions apply to both international and Indian life insurance companies

Exemptions Under Section 10(10D) of the Income Tax Act

Here are the various tax benefits that individuals can enjoy under Section 10(10D) of Income Tax Act, 1961: 

• Eligible for deductions under Section 10(10D) if the insurance premiums paid in a single year, between 1 April 2003 and 31 March 2012, are not more than 20% of the insurance cover.
• If the policy is purchased after April 1, 2012, the premium amount should not exceed 10% of the entire insured value.
• Death Benefits - The sum received by the nominee after the policyholder's death is entirely exempt under Section 10(10D)
• Surrender Benefits - If the policy is surrendered by the policyholder before the policy's maturity, the tax can be entirely or partially exempt, depending upon the policy
• If the policyholder becomes ill or incapacitated, the exclusion for life insurance policies acquired before April 1, 2013, is limited to 15% of the guaranteed value in the event.