Section 10(10d) of income tax act 1961

Section 10(10D) of the Income Tax Act of 1961 establishes guidelines for the taxability of claims. As per this section, claims like the death benefit or any other accrued bonus taking place because of a life insurance policy are exempt under the Income Tax Act, 1961.

There are numerous benefits associated with a life insurance policy, with the tax benefit being one of the most significant. The tax benefit can be obtained by the taxpayer in the form of an income tax deduction or an income tax exemption. In this, the provisions of Section 80C of the Income Tax Act of 1961 provide the income tax deduction, while the provisions contained under Section 10(10D) of the cited Act offer the income tax exemption. The purpose of this article is to explain the income tax exemption provided by Section 10(10D) of the Income Tax Act of 1961.

An Examination of the Income Tax Exemption Provided by Section 10(10d) Income Tax Act of 1961

As per the provisions stated under Section 10(10D), any amount received by the taxpayer under a life insurance policy is exempt from the tax. Such an amount is also the sum assigned in the form of a bonus under such a policy.

In a summarised manner, the following aspects are provided in Section 10 (10D):

• This section provides an exemption for any amount received by the taxpayer under a life insurance policy. This amount involves maturity benefits, death benefits, and an outstanding bonus.
• This exemption is available on any form of life insurance policy claim.
• The whole amount received in a life insurance policy is exempt under Section 10(10D). It suggests that there is not any higher limit applied to the claim against the life insurance policy.
• This section also specifies some exceptions in which Income tax exemptions are not available, which are listed below.

Exception Under Section 10(10D) of the Income Tax Act, 1961

The income tax exemption under Section 10(10d) income tax act is not available in the following circumstances:

1.   If any sum received by the taxpayer under Sections 80DD(3) and 80DDA(3) of the Income Tax Act, 1961,
2.   Any amount received by the taxpayer under the Keyman Insurance Policy

It should be noted that any amount received under the keyman insurance policy implies the life insurance policy obtained by a person.

• On the life of another individual who is or was the first denoted person’s employee
• On the life of another person who is or was involved in the occupation of the first mentioned person.

3.   If the following conditions are met, any amount received by the taxpayer under an insurance policy,

 In addition to this, in point 2, it is required to note that the amount of premium payable, more than 15% of the actual sum assured for any of the years, would be applied subject to the conditions of the following points:

• If the insurance policy was issued on or after 1 April 2013,
• The insurance policy is issued for people with disability or severe disability as explained in Section 80U or people facing disease as prescribed under Section 80DDB.

It is significant to note that the exemption provided under Section 10(10D) is available only for amounts received on the death of a person.

Make tax season stress-free – our Tax Calculator simplifies the process for you.

What is the Maturity Return Requirements under Section 10(10D) Income Tax Act?

To qualify for tax deductions under Section 10(10d) income tax act, the maturity returns must satisfy these conditions:

• The payout must occur upon the policyholder’s demise.
• It should not be categorised as Keyman Insurance Policy compensation.
• The received amount must not be in the form of an annuity or retirement payout.
• The benefits should not originate from a corporate group insurance policy.
• The benefits should not be associated with insurance issued under Section 80DD (3) of the Income Tax Act.

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

Section 10(10D) of the Income Tax Act, enacted in 1961, deals with the regulations pertaining to the taxation of various claims, such as those related to death and maturity benefits. This section allows individuals to qualify for tax exemptions on the accrued bonuses and the sum assured, if applicable, received from their life insurance policy.

Notably, even though this lump sum may resemble income, Section 10(10D) serves the crucial purpose of shielding the amount disbursed by the insurer to a family member from being categorised as income. This provision ensures that the money remains exempt from income tax calculations, safeguarding it from taxation purposes.

Understanding Section 10(10D): Eligibility Criteria, Benefits, and Exemptions

Eligibility Criteria:

• To qualify for tax exemptions according to Section 10(10d) income tax act, it’s imperative to adhere to the following stipulations:
• Under Section 10(10D), individuals can avail tax benefits applicable to life insurance policies issued by both domestic and international insurance companies.
• All claims arising from life insurance policies are eligible for tax deductions.
• This provision grants tax deductions on funds received through life insurance policies, encompassing maturity benefits, death benefits, and accrued bonuses.
• There is no prescribed limit on the maximum coverage amount for life insurance policies.
• Tax deductions are not applicable to payouts from Keyman Insurance Policies.
• Premiums or annual payments made during a specific year within the policy’s tenure must not exceed 20% of the sum assured for policies acquired between April 1, 2003, and March 31, 2012.
• For life insurance policies purchased on or after April 1, 2012, premiums should not surpass 10% of the sum insured.
• Throughout the policy’s duration, the annual life insurance premium should not exceed 15% of the policy’s cash value for policies initiated on or after April 1, 2013.

Furthermore, the life insurance policy must cover individuals who meet the subsequent criteria:

• Individuals afflicted by ailments or diseases listed in the provisions of Section 80DDB of the Income Tax Act, 1961.
• Individuals with disabilities or developmental disabilities as specified in Section 80U of the Income Tax Act, 1961.

Benefits:

The primary advantage of Section 10(10D) is its ability to grant tax relief on the returns from a life insurance policy. In practical terms, this signifies that the sum paid out as a death benefit to the policyholder’s nominee or legal inheritor remains free from tax obligations. Furthermore, the maturity benefit obtained by the policyholder upon the policy’s conclusion also enjoys an exemption from taxation.

Exemptions

There exist specific exceptions within the framework of Section 10(10d) income tax act. These encompass:

• The payouts from a life insurance policy designated for the legal inheritor or nominee are not subject to taxation in accordance with Section 10(10D).
• The maturity benefit received by the policyholder is likewise exempt from taxation, provided that the premium paid on the policy does not surpass 10% of the assured sum.
• In the event of the policyholder transferring the policy to another individual, the tax advantages stipulated in Section 10(10D) will persist, extending to the new policyholder.

How Section 10(10D) Works

Section 10(10d) income tax act operates in a comprehensive manner. If you have a qualifying insurance policy and receive maturity proceeds from it, those proceeds are not subject to income tax. This exemption is intended to encourage individuals to invest in insurance policies and secure their financial future without the burden of additional taxation.

Main Amendments in Section 10(10D) of the Income Tax Act, 1961 by Finance Act 2021

The government has made some changes to Section 10(10d) income tax act of the Finance Act 2021 by inserting four to seven provisos, which are explained below:

• The fourth proviso of section 10(10D) has been amended in the Finance Act 2021, and it states that no exemption is provided to any unit-linked insurance policy that has been issued on or after 1 February 2021, subject to the condition that the amount of premium payable for any of the prior years in the course of the policy term is higher than ₹2,50,000.
• The fifth proviso of Section 10(10d) income tax act states that, if a taxpayer has more than one unit-linked insurance plan that has been issued on or subsequent to February 1, 2021, an exemption would be available only relating to such a policy in which the amount of total premium does not exceed ₹2,50,000 for any of the prior years in the course of the policy period.
• The sixth proviso of Section 10(10d) income tax act states that, if an amount is received on the death of a person, the fourth and fifth provisos shall not be applicable. Any amount received on the death of a person would be exempt from income tax, and there would be no capital gain or tax charged under the Income Tax Act of 1961.
• Any income or profit derived by a person from the receipt of any amount at the time of maturity, fractional extraction, or surrender under such a high-value ULIP in which the premium amount exceeds ₹250,000 is considered a capital gain, and tax is levied accordingly.

Security Transaction Tax (STT) is charged on the receipt of any amount at the time of maturity, fractional extraction, or surrender of an ULIP issued on or after 1 February 2021.

New Provisions of Tax for Unit Linked Insurance Policy Plan

The proposal has been given under budget 2021 with respect to the removal of the exemption of tax on the amount received under the ULIP plan if the amount of the annual premium is more than ₹2,50,000. Though there is significant uncertainty about how the framework would work, particularly in the case of numerous ULIPs that include both forms taken prior to the budget proposal and purchased after the budget proposal,

Presently, it has been clarified by the CBDT that any amount received in the form of a bonus in the course of the current year under any one or more allowed ULIPs issued on or subsequent to 1 February 2021, shall be exempt from Section 10(10d) income tax act if the yearly premium during the term of the policy did not exceed ₹2,50,000.

Conclusion

As per Section 10(10d) income tax act, 1961: https://incometaxindia.gov.in/pages/acts/income-tax-act.aspx, the amount invested and the amount received by the taxpayer from the life insurance policy is exempt. Therefore, tax is not charged on any amount received on the maturity of the life insurance policy or on the death benefits. Furthermore, there is no tax deducted at source (TDS) on life insurance, making it an ideal tool for tax savings. If you want to get more information on this type of tax-saving technique, connect with Vakilsearch.

FAQs on Section 10(10d) Income Tax Act

Other Related Articles

• 10 Compelling Reasons Why You Need to File Income Tax Returns
• Things You Should Know While Calculating Your Income Tax Return
• How to Complete Your Income Tax Return and File It