Life insurance policies offer financial security to your family in the unfortunate event of your death. However, the benefits you receive from such policies are considered income and are subject to income tax. To alleviate this tax burden for Indian citizens, the government has introduced Section 10(10D) of the Income Tax Act, 1961, which exempts any payout received under a life insurance policy from taxes. For more information on how this section works, please keep reading.
How does Section 10(10D) work?
Section 10(10D) of the Income Tax Act ensures that payouts from life insurance claims, such as death benefits and accrued bonuses, are not subject to tax.
For example, if Mr. Samay had purchased a term insurance plan and named his son as the beneficiary, and passed away in an accident, the death benefit payout to his son would not be considered as taxable income.
What is the Eligibility Term for the Section 10(10D)?
Section 10(10D) of the Income Tax Act, 1961 provides tax exemptions for any kind of life insurance claims, including death benefits, maturity benefits, and accrued bonuses. There is no limit on the amount that can be exempt, and the benefits apply to both Indian and foreign life insurance providers. Individuals, foreign companies, trusts, associations, HUFs, and non-salaried and salaried individuals are all eligible to claim these tax benefits.
What are Exclusions for Section 10(10D)?
There are certain exceptions to the tax exemptions provided by Section 10(10D) of the Income Tax Act. These include:
- Any amount received under a Keyman insurance policy, meaning a life insurance policy taken by an employer:
► On the life of a current or former employee
► On the life of an employee who is or related to the business
- Payments under life insurance policies issued after April 1, 2012, where the premium exceeds 10% of the sum assured.
- Payments under life insurance policies issued prior to March 31, 2012, and on April 1, 2003, where the premium for any fiscal year exceeds 20% of the sum assured.
Aastha Mestry - Portfolio Manager
An Author and a Full-Time Portfolio Manager, Aastha has 6 years of experience working in the Insurance Industry with businesses globally. With a profound interest in traveling, Aastha also loves to blog in her free time.