Tax on Single Premium Life Insurance Policies in India

Single-premium life insurance policies offer the convenience of a one-time payment for long-term coverage, but they come with specific tax considerations that policyholders must understand. The tax benefits of these policies are governed by provisions in the Income Tax Act, of 1961, and some important changes in recent years could affect how the policy’s premiums and maturity benefits are taxed.

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What are the Tax Benefits on Premium Payments?

One of the key benefits of life insurance, including single premium policies, is the tax benefit under Section 80C. You can claim a deduction of up to ₹1.5 lakh for premiums paid towards life insurance policies, including single premium plans. This applies to policies where the premium does not exceed certain limits based on the sum assured.

For policies issued after April 1, 2012, the premium should be no more than 10% of the sum assured to qualify for tax deductions under Section 80C. If it exceeds this threshold, the excess premium amount will not be eligible for deduction and may be subject to tax.
The allowable premium limit is 20% of the sum assured for policies issued before April 1, 2012.

This ensures that the tax relief is only available for life insurance policies within reasonable risk parameters, making it an attractive option for taxpayers seeking to reduce their taxable income.

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What are the Changes in Taxation of Maturity Proceeds?

A significant change on April 1, 2023, is the taxation of maturity proceeds from life insurance policies. If the total premium paid exceeds ₹5 lakh in any financial year, the maturity proceeds will be subject to tax. This applies to single premium and traditional life insurance policies (excluding ULIPs).

Under the amended tax laws, maturity proceeds from policies where the premium exceeds ₹5 lakh are no longer eligible for tax exemption under Section 10(10D). Instead, these proceeds are added to the policyholder’s income and taxed at the applicable rates. However, policies that meet the conditions—i.e., where the premium is ₹5 lakh or less—continue to enjoy the tax-free status on maturity proceeds.

What are the Taxation of Death Benefits?

One of the advantages of life insurance is that the death benefits are entirely tax-free under Section 10(10D) of the Income Tax Act. This remains unaffected by the changes introduced for maturity benefits. Therefore, in the unfortunate event of the policyholder’s death, the nominee will receive the death benefit without any tax liability, irrespective of the premium amount.

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Is there TDS Deducted on Maturity Proceeds?

If the maturity proceeds from a single premium policy exceed ₹1 lakh, the insurer is required to deduct Tax at Source (TDS) at a rate of 5%. This TDS is deducted from the taxable portion of the proceeds, which is determined based on the premium paid relative to the sum assured. It’s important to note that this TDS can be claimed back when filing the income tax return, potentially reducing the final tax burden.

Final Thoughts!

Single premium life insurance policies offer a convenient and effective way to provide financial security for your loved ones. While they carry significant tax benefits on premiums paid under Section 80C, the tax treatment of maturity benefits has become more stringent for policies with high premiums. Policyholders must be mindful of the ₹5 lakh threshold for tax exemption on maturity proceeds, as exceeding this amount will result in taxable proceeds. However, the death benefits remain tax-free, making life insurance an effective tool for estate planning.

Note: You may also like to read about term insurance .

Note: You should also check the term insurance benefits if you are planning to purchase the term insurance plan.

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˜The insurers/plans mentioned are arranged in order of highest to lowest Sum Assured(SA) offered by Policybazaar’s insurer partners offering term insurance plans on our platform, as per ‘first year premium of life insurers as at 31.03.2025 report’ published by IRDAI.

Policybazaar does not endorse, rate or recommend any particular insurer or insurance product offered by any insurer. For complete list of insurers in India refer to the IRDAI website www.irdai.gov.in

Rs. 400/month is starting price for a 1 crore term life insurance for an 18 year-old male, non-smoker, with no pre-existing diseases, cover upto 30 years of age, rounded off to nearest 10.

Rs. 400/month (Rs.13/day) is starting price for a 1 crore term life insurance for an 18 year-old male, non-smoker, with no pre-existing diseases, cover upto 30 years of age.

+Rs. 230 is starting price for a 50 lakhs term life insurance for an 18 year-old male, non-smoker, with no pre-existing diseases, cover upto 30 years of age, rounded off to nearest 10.

+Rs. 8/day is starting price for a 50 lakhs term life insurance for an 18 year-old male, non-smoker, with no pre-existing diseases, cover upto 30 years of age, rounded off to nearest 10.

+Rs. 12/day is starting price for a 75 lakhs term life insurance for an 18 year-old male, non-smoker, with no pre-existing diseases, cover upto 30 years of age, rounded off to nearest 10.

+Rs. 497/month is starting price for a 1.5 crore term life insurance for an 18 year-old male, non-smoker, with no pre-existing diseases, cover upto 30 years of age.

+Rs. 487/month is starting price for a 2 crore term life insurance for an 18 year-old male, non-smoker, with no pre-existing diseases, cover upto 30 years of age.

+Rs. 626/month is starting price for a 3 crore term life insurance for an 18 year-old male, non-smoker, with no pre-existing diseases, cover upto 30 years of age.

+Rs. 905/month is starting price for a 5 crore term life insurance for an 18 year-old male, non-smoker, with no pre-existing diseases, cover upto 30 years of age.

+Rs. 1,267/month is starting price for a 7 crore term life insurance for an 18 year-old male, non-smoker, with no pre-existing diseases, cover upto 30 years of age.

*The full refund of premium is available on availing the one-time option of refund of premium. Total premium paid for policy (paid for add-ons) will be the special exit value, payable on availing the one-time option of refund of premium if you wish to completely exit the policy.

+Rs. 447/month is starting price for a 1 crore term life insurance for an (NRI) 18 year-old male, non-smoker, with no pre-existing diseases, cover upto 30 years of age.

+Rs.679/month is starting price for a 2 crore term life insurance for an (NRI) 18 year-old male, non-smoker, with no pre-existing diseases, cover upto 30 years of age.

+Rs. 910/month is starting price for a 3 crore term life insurance for an (NRI) 18 year-old male, non-smoker, with no pre-existing diseases, cover upto 30 years of age.

+Rs. 1,374/month is starting price for a 5 crore term life insurance for an (NRI) 18 year-old male, non-smoker, with no pre-existing diseases, cover upto 30 years of age.

+Rs. 1,924month is starting price for a 7 crore term life insurance for an (NRI) 18 year-old male, non-smoker, with no pre-existing diseases, cover upto 30 years of age.

Women

+Rs. 400/month is Starting price for a 1 crore term life insurance for an 18 year-old Female, non-smoker, with no pre-existing diseases, cover upto 30 years of age, rounded off to nearest 10.

Rs. 461/month is the starting price for a 1 crore term life insurance for an 24 year-old female, non-smoker, with no pre-existing diseases, cover upto 54 years of age.

1,642/month is the starting price for a 1 crore term life insurance for an 44 year-old female, non-smoker, with no pre-existing diseases, cover upto 74 years of age.

Prices offered by the insurer are as per the approved insurance plans | #All savings and online discounts are provided by insurers as per IRDAI approved insurance plans | Standard Terms and Conditions Apply | **Tax Benefits are subject to changes in tax laws.| Policybazaar Insurance Brokers Private Limited

We will respond in the first instance within 30 minutes of the customers contacting us. 30-minute claim support service is for the purpose of giving reasonable assistance to the policyholder in pursuance of the claim. Settlement of claim (including cashless claim) is the responsibility of the insurer as per policy terms and conditions. The 30-minute claim support is subject to our operations not being impacted by a system failure or force majeure event or for reasons beyond our control. For further details, 24x7 Claims Support Helpline can be reached out at 1800-258-5881

For more details on risk factors, terms and conditions, please read the sales brochure carefully before concluding a sale

Policybazaar Insurance Brokers Private Limited | CIN: U74999HR2014PTC053454 | Registered Office - Plot No.119, Sector - 44, Gurgaon, Haryana – 122001 | Registration No. 742, Valid till 09/06/2027, License category- Composite Broker Visitors are hereby informed that their information submitted on the website may be shared with insurers. Product information is authentic and solely based on the information received from the insurers.

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