A life insurance plan offers security to a family after the policyholder’s demise. It provides financial assistance to a family during an emergency. However, money received in the form of insurance benefits is a part of your income and comes under the purview of income tax.
To reduce the tax burden of Indian citizens, the government has introduced Section 10(10D) of the Income Tax Act which offers tax exemptions on any amount paid out under a life insurance policy. Keep reading to get the details!
As per Section 10(10D), there will be no tax implications for claims originating from life insurance policies. Such claims can include death benefits and accrued bonuses.
For example, let’s say Mr. Agarwal bought a term insurance plan and nominated his son as a beneficiary. Unfortunately, Mr. Agarwal died in a road accident, and his insurer disbursed the death benefit to his son (nominee). Such a payout may seem like an income. However, Section 10(10D) ensures that this amount is not taxed.
Here are the primary provisions under Section 10(10D) of the Income Tax Act, 1961:
Certain exceptions to this Section are as follows:
In case payment from a life insurance plan is more than Rs. 1 lakh and the insurance policy is not applicable under this Section, then your insurance company will deduct 1% TDS prior to making the payment. This is in force from October 2014.
Furthermore, your insurer will deduct TDS on bonus payments. If your payment is below Rs. 1 lakh, then there’ll be no TDS exemption. While this payment will be completely taxable, a person may claim credit for tax deducted at source at the time of ITR filing.
The maturity amount from a single premium insurance policy is not eligible for Section for exemption under Section 10(10D). However, maturity benefit amounts are not taxable in case the sum assured is 10 times the amount of premium payable for the policy period.
Maturity payouts must satisfy the following conditions for individuals to avail tax benefits under this Section:
Here are the terms and conditions to tax benefit under Section 10(10D):
Needless to say, many people have used insurance policies as tax-saving tools over the years. The primary aim of Section 10(10D) of the Income Tax Act is to encourage people to purchase life insurance policies for protecting their loved ones. However, you must understand the policy terms and exceptions before taking the plunge.
Ans: The total payment under a life insurance policy is eligible for tax exemption under Section 10(10D) of the Income Tax Act. This means that the Income Tax Department has not set an upper limit for this tax benefit.
Ans: Yes, as per Section 80C of the Income Tax Act, 1961, the premium payables for a life insurance plan are eligible for a tax deduction. You can opt for a deduction of up to Rs. 1,50,000 under this section.
Ans: As per Section 10(10D), the payment made on surrender or maturity of an insurance policy or at the time of a policyholder’s demise will be tax-fee. However, you need to satisfy the following conditions:
In the case of insurance policies issued prior to April 1 2012, the sum assured will have to be 20 times (minimum) the premium.
In the case of insurance policies issued after April 1 2012, the premium amount should not go beyond 10% of the sum assured.
Ans: Life insurance policies can be helpful to you in the following ways:
1. They offer financial assistance to your family
2. Such policies can facilitate your child’s higher education in case of your absence
3. The payouts can be utilised to pay off debt
4. Some annuity-oriented life insurance policies provide regular pensions after maturity
5. You can avail tax benefits through these plans.
ULIPs (Unit Linked Insurance Plans) merge financial investment with life insurance. These policies offer multiple portfolio strategies and fund options. They have a lock-in period of 5 years. After this period is over, you can withdraw money from this plan regularly.
Disclaimer: Mutual Fund investments are subject to market risks, read all scheme-related documents carefully.
This article has been prepared on the basis of internal data, publicly available information and other sources believed to be reliable. The information contained in this article is for general purposes only and not a complete disclosure of every material fact. It should not be construed as investment advice to any party. The article does not warrant the completeness or accuracy of the information, and disclaims all liabilities, losses and damages arising out of the use of this information. Readers shall be fully liable/responsible for any decision taken on the basis of this article.
|Section 194IB||Section 44AA||Section 80E|
|Section 195||Section 80EEA||Section 80DD|
|Section 80CCC||Section 80GG||Section 80 G|
|Section 54F||Section 1941A||Section 10|
|Section 194Q||Section 192||Section 269SS|
|Section 80DDB||Section 44AD||Section 194C|
|Section 194A||Section 194H||Section 80D|
|Section 80C||Section 80C, 24(b), 80EE & 80EEA||Section 234A|
|Section 50C||Section 80C||Section 80EEA|
|Section 194B||Section 194J||Section 206C|
|Section 80CCG||Section 80 EEB||Section 24Q|
|Section 40b||Section 194C||Section 54EC|
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