Section 10(10D): Tax Exemption on Maturity Amount of Life Insurance Policy
As per Section 10(10D) of the Income Tax Act, 1961, any sum received under a Life Insurance Policy, including the sum allocated by way of bonus on such policy is exempt from tax whether received from India or any Foreign Company. However, this rule does not apply to following amounts:
- sum received under Section 80DD(3) or 80DDA(3), or
- any sum received under a Keyman Insurance Policy, or
- any sum received other than as death benefit under an insurance policy which has been issued on or after April 1, 2003 and if the premium paid in any of the years during the term of the policy is more than 20% of the Actual Capital Sum Assured.
- The Finance Bill, 2012 has proposed that the exemption under Section 10 (10D), on benefits you receive under life insurance policies issued on or after 1st April, 2012, shall be available only if the premium payable in any of the years is not more than 10% of the Sum Insured.
Provided that the provisions of this sub clause shall not apply to any sum received on the death of a person; Provided further that for the purpose of calculating the actual capital sum assured under this sub clause effect shall be given to the Explanation to sub sec (3) of sec 80C or the Explanation to sub sec (2A) of section 88 as the case may be.
- For the purpose of calculating actual capital sum assured, following shall not be taken into the account:
the value of any premiums agreed to be returned; or
any benefit by way of bonus or otherwise, over and above the sum actually assured, which is to be or may be received under the policy by any person.
- Any amount received from the Foreign Life insurance company is also eligible for deduction. [Refer: ITA No.549/Mum/2010 (Asst Year 2006-07)]
- Keyman insurance policy means a life insurance policy taken by person on the life of another person who is connected to the business as an employee or other capacity, either in the present or in the past.
- It may be noted that while computing the amount taxable out of the maturity proceeds, premium paid by the assess shall be excluded – Circular No. 7/2003 dated 05.09.20013.
Let’s takes the example: Sanyam, an actor, has taken a life insurance policy for Rs. 1 crore. He has paid sum of Rs. 50 lakhs, Rs. 20 lakhs, Rs. 20 lakhs and Rs. 10 lakhs as premium over life of insurance policy. A sum of Rs. 1.10 crore has been received during 2012-13 from the insurance company at the time of maturity of the policy.
Tax Treatment: Exemption under section 10(10D) is not available to Sanyam as the premium paid in one of the years exceeds 20% (now 10%) of the life insurance sum assured. Accordingly, the amount of income accruing on such policy, not including the premium paid shall be subject to tax. In the given case, Rs.10 lakhs being Rs. 1.10 crore less Rs. 1 crore shall be subjected to tax under section 10(10D).