Section 10(10D) of Income Tax Act

A person can enjoy tax-exempt status on the lumpsum assured and accrued premium (if any) earned through their term life insurance policy claim under Section 10 (10D) of the IT Act, 1961 – that is maturity or death benefit. This exemption is available on various life insurance claims and also applies to the payments received from a Unit linked insurance plans having aggregate premium less than 2.5L in a financial year at maturity or even in case of premature withdrawal subject to applicable provisions.

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

• If the insurance premiums that were paid in a single year throughout the term of the policy for a policy bought between 1 April 2003 and 31 March 2012 are not over 20% of the insurance cover, one may qualify for the deductions under Section 10(10D).
• However, the premium amount should not be greater than 10% of the insured total if the policy is acquired after 1 April 2012.
• The exemption on life insurance obtained before 1 April 2013 does not surpass 15% of the guaranteed value in the event that the insured is seriously disabled or ill.
• Section 80U of the act lists the disabilities that fit within this group, such as developmental disorders, autism, and so on.
• Section 80DDB lists the illnesses that are covered by this waiver.

The payout at the time of policy maturity must comply with the following requirements in order to qualify for tax savings under section 10(10D) of income tax act.

• The compensation must be paid upon death.
• The benefit was not obtained for insurance issued in accordance with section 80DD (3) of the IT Act.
• The money paid out shouldn't be covered by the Keyman Insurance Plan.
• It cannot be a retirement or annuity payout.
• The benefits are not obtained through a group insurance policy supplied by the company.
• For plans obtained between the 1 April 2003, and the last day of March 2012, the insurance cost paid in any calendar year cannot be greater than 20% of the sum assured.
• The monthly amount should not exceed 10% of the sum guaranteed if the insurance is obtained after April 01, 2012.
• The annual insurance rate payment cannot be more than 15% of the policy's insurance cover. On or after April 1, 2013, the same would be obtained, and the coverage has to be for the lifespan of any individual who is:
• A person who meets the criteria for a serious handicap under section 80U of the IT Act of 1961.
• Someone who has ailments or issues as mentioned according to Section 80DDB of the IT Act.
• The sum you receive will be subject to tax deducted at source (TDS) in accordance with the following rules if the maturity value of your insurance is not exempted under section 10(10D) of income tax act:
• 10% TDS on the entire maturity value is applied if a PAN is provided.
• TDS of 20% is applied to the whole sum if PAN is not presented.

It is not surprising that the majority of individuals have been using insurance as a strategy for tax returns for many years. However, the real goal of these advantages is to provide a motivation for more people to purchase health insurance.

It is advised that you fully comprehend the numerous tax benefits provided by the various provisions of the Income Tax Act, 1961. Additionally, you must exercise caution and refrain from basing your acquisition entirely on the possible tax advantages. Comparing various term life insurance policies provided by the various companies, comprehending their elements, advantages, additions, limitations, and other terms & conditions, and then making a wise decision based on your requirements and financial objectives, tends to be advantageous. One simple way to do this is to undertake in-depth online information and analyze data from reputable sources. Before choosing an insurance provider, it's crucial to consider their history and dependability.

Budget 2026 introduced a key amendment under fourth proviso to Section 10(10D) that is applicable to Unit Linked Insurance Plans (ULIPs) that have a high annual premium. As per this amendment, Section 10 (10D) exemption is not applicable to ULIPs issued on or after 1 Feb 2021, if the annual premium payable exceeds Rs. 2.5 lakh in any year during the policy term.

The Budget announcement also introduced a 5^th proviso, which is covers instances when a single person is paying premiums for multiple ULIPs. The Rs. 2.5 lakh annual premium payment limit is also applicable in such cases. So, as per this Section 10(10D) amendment, the policy holder can avail Section 10(10D) benefits only for policies where the aggregate annual premium paid for all ULIPs is less than Rs. 2.5 lakh. However, these exclusions to Section 10 (10D) exemptions are not applicable in case of ULIP payouts received as death benefit of the insured person.

Section 10(10D) covers several types of life insurance payouts. Understanding these categories can help you know which proceeds qualify for tax exemption. The following common policies are generally exempted under Section 10D:

The following conditions must be met in order to qualify for tax exemptions within Section 10(10D) of Income Tax Act:

• Tax deductions are available for claims made under a life insurance policy, including death benefits and maturity benefits, including earned incentives.
• Tax reductions are available for all claims under life insurance policies.
• The demand for life insurance coverage is not subject to any maximum value.
• In accordance with Section 10(10D) of the Income Tax Act of 1961, both Indian and international life insurance companies are eligible for tax benefits.
• No tax deductible is available for the payout within the Keyman Insurance Policy.
• For life insurance policies purchased between 1 April 2003 and 31 March 2012, the monthly payments or premiums that are paid in any given year throughout the policy's term cannot exceed 20% of the sum insured.
• For plans bought on or after April 1, 2012, the premium amount cannot exceed 10% of the sum assured.
• Any year in the policy's lifetime, the premium for life insurance must not exceed 15% of the cash value. It should also be purchased on or after April 1, 2013. The life insurance policy coverage must also include anyone who satisfies the following requirements:
• Individuals who are disabled or have a developmental disability as defined by Section 80U of the IT Act.
• Individuals suffering from ailments as mentioned under Section 80DDB.

To understand how the Section 10 10d tax benefit works, consider the following example:

Suppose you purchase a ULIP with life cover of ₹10 lakh and pay an annual premium of ₹80,000. Since the premium is less than 10% of the sum assured, the policy proceeds qualify for tax exemption under Section 10 (10D) of the Income Tax Act.

If the policy matures after 20 years and the policyholder receives a maturity benefit of ₹18 lakh, the entire amount will remain tax-free under Section 10(10D).

However, if the annual premium exceeds the permitted limit relative to the sum assured, the maturity amount may become taxable as per the applicable income tax rules.

You can check some of the ways below to ensure your life insurance policy qualifies for tax exemption under Section 10(10D):

Section 10(10D) of the Income Tax Act plays an important role in making life insurance policies tax-efficient. It ensures that you and your family receive financial benefits without additional tax burden, provided the policy meets certain conditions.

Understanding the premium limits, eligibility rules, and recent amendments is essential to maximise the benefits of the Section 10 10d tax exemption. By selecting the right policy and ensuring tax compliance, you can enjoy both financial protection and long-term tax advantages.