Guide to Tax Exemptions Under Section 10(10D) of Income Tax Act, 1961

When examining insurance tax benefits, we frequently evaluate the benefits of the tax deductions for insurance premiums paid under Section 80C for Life Insurance and Unit Linked Insurance Plans. Under section 80C of the Income Tax Act, 1961, tax benefits can be claimed up to a maximum of INR 1.5 lakh per annum.  There are also Section 80D tax breaks for health insurance premium payments. However, there is another part of the Income Tax Act that allows tax breaks for insurance payouts. This is the less well-known Section 10(10D) of the Income Tax Act.

This provision exempts from income tax on any income received from your life insurance policy, and this deduction is available for all forms of life insurance policies. What makes it even more intriguing is that the deductions under section 10 (10D) have no maximum limit and include bonuses and surrender values.

Section 10 (10D) of the Indian Income Tax Act provides an opportunity for taxpayers to reduce their taxable income. Let us unravel this section in detail.

 

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

Individuals can claim tax exemption on all payouts received through their life insurance policy under Section 10 (10D) of the Income Tax Act of 1961 (including surrender, bonus, survival, maturity, death benefit etc). However, in the recent budgets, the government has brought in certain restrictions for high value ULIPs and savings plans by making their proceeds taxable.

 

Terms and Conditions for Availing Section 10(10D) Benefits 

• For the life insurance policies bought between 1st April 2003 and 31st March 2012, the premium payable for any year cannot be more than 20% of the sum assured
• For policies purchased after 1st April 2012, the annual premium payable cannot be more than 10% of the sum assured
• If an individual suffers from a severe disability or disease, and their policy was issued on or after 1st April 2013, then the 10% limit for them has been revised to 15%. This applies to individuals under the following criteria:
  • Disabled or severely disabled, as specified under Section 80U of the Income Tax Act, 1961
  • Suffering from any disease as specified under Section 80DDB of the Income Tax Act, 1961
• Section 10(10D) exemption is also available to all returns from single premium life insurance policies, Unit-Linked Insurance Plans (ULIPs) issued upto 31 Jan 21 and savings plans issued upto 31 March 23, subject to satisfaction of above criteria.
• For ULIPS issued from 1 Feb 21, where annual premium < 2.5Lacs per policy or aggregate, all proceeds will continue to be exempt subject to satisfaction of above criteria.  For high-value ULIPs (annual premium payable >2.5Lacs per policy or aggregate basis), benefit of section 10(10D) will not apply and all proceeds (other than death claim) will be taxable as capital gains.
• For savings/ traditional plans where annual premium < 5Lacs per policy or aggregate, all proceeds will continue to be exempt subject to satisfaction of above criteria.  For high-value savings plans (where annual premium payable > 5 Lacs per policy or aggregate basis), benefit of section 10(10D) will not apply and all proceeds (other than death claim) will be taxable as ‘income from other sources’.
• All death claims (except in case of keyman insurance) will be exempt under section 10(10D).
• Section 10(10D) benefit is not applicable for keyman insurance policies as defined in Income Tax Act.

 

Is TDS Applicable on Life Insurance?

Unless the insurance proceeds are exempt under section 10 (10D), any money received from an insurance provider under a life insurance policy is subject to TDS (Tax Deduction at Source) at a rate of 5% on income component under section 194DA of the Income Tax Act, 1961. Furthermore, if a PAN card is not submitted or not linked with Aadhaar, then the rate of TDS becomes 20%.

This indicates that policy proceeds exempt under section 10(10D) will not be subject to the TDS subject to satisfaction of criteria mentioned therein. Further, TDS is applicable only where the value of payouts per annum exceeds Rs 100,000.

 

Tax Benefits with Edelweiss Tokio Life Insurance Term Plan

Edelweiss Tokio offers Edelweiss Tokio Life – Zindagi Protect, an affordable term insurance plan that offers numerous benefits, including applicable tax benefits and life cover up to 100 years. You can get tax deductions of the premium paid for the policy under Section 80(C) of the Income Tax Act, 1961. Additionally, the death benefit payable under the plan is fully exempt from taxation under Section 10 (10D) of the Act.

You can calculate the premium required for Edelweiss insurance using the free term plan calculator available on the website.

 

Summing Up

While affordability is an important factor in looking for suitable insurance, providing financial protection for your family is the foundation of every term plan. Additionally, be aware of the term plan tax benefits that you can avail of from your plan.

Be mindful of future requirements and incorporate components such as inflation and changing financial needs before you buy term insurance.

 

Swati Tumar - Travel & Finance Writer

Swati is a Writer in the day and an illustrator at night. Among her interests, she is quite fond of art and all things creative. She often indulges herself in creating doodles, illustrations, and other forms of content. She identifies herself as an avid traveler and shameless foodie.