Understanding 10(10D) in Insurance

Life insurance is an important tool for ensuring that your family is protected financially in case of your death. One of the significant benefits of Life Insurance is the tax benefits it provides. Knowing about these benefits is important to take advantage of them. Let’s learn more about the section 10(10D) of the Income Tax Act 1961.

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What is 10(10D) in Insurance?

Section 10(10D) of the Income Tax Act 1961 deals with tax benefits and deductions for life insurance policies. The section was implemented by the Finance Act 2003 and has undergone several changes since then.

According to this section of the Income Tax Act, the proceeds from the life insurance policy are exempted from tax if the following criteria are met :

The exemption is applicable for policies that meet the requirement of minimum sum assured
The minimum sum assured should be at least 10 times the annual premium paid for policies issued after 1st April 2012 and 5 times the annual premium paid for policies issued before that date.

The exemption is not provided if the policy is surrendered or terminated before 2 years by either the policyholder or the insurance company due to any reason, such as non-payment of premium or surrender by the policyholder. However, it is given if the policy is terminated due to the policyholder's death.

This exemption only applies to life insurance policies issued after 1st April 2003. Policies issued before this date cannot avail of this benefit.

It is important to note that the exemption is only for life insurance proceeds, not the premiums paid. The premiums the policyholder pays are not deductible from the policyholder's taxable income.

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What is the eligibility criteria of section 10(10D)?

To be eligible for section 10(10D), one must meet the following criteria as laid down by the Act:

The policy should be life insurance. It does not apply to other insurance policies, such as health, motor, etc.
The policy should be enforced for at least 2 years. The exemption is not given if it is terminated or cancelled before that time.
The policy should be issued on or after 1st April 2003.

What are the benefits of section 10(10D)?

The main benefit of section 10(10D) of the Income Tax Act 1961 is that it offers full tax exemption on Life insurance policies. This means that the sum assured received by the nominee or the policy beneficiary is not taxable. The maturity benefit received at the end of the policy term is also fully exempted from Tax.

If the policy is terminated before maturity, the surrender benefit may be partially or fully taxable, depending on the policy's terms and conditions.

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How to calculate the taxable amount under section 10(10D)?

The taxable amount depends on when the policy was terminated.

Let us try to understand the different scenarios:

Determine the proceeds received from the transfer of the life insurance policy. Now, subtract the premium paid from the proceeds received to arrive at the taxable amount

If the policy was terminated or surrendered before 2 years of it being in force, then the entire amount will be taxable
If the policy was terminated or surrendered after 2 years, then the calculation of the taxable amount is as follows :
- If the policy was taken after 1st April 2003 and before 1st April 2012, then the taxable amount will be lower by 20% of the proceeds received from the policy transfer or the total amount of premiums paid till the date of the transfer.
- If the policy was taken after 1 April 2012, the taxable amount will be the lower of 10% of the proceeds received from the policy's transfer or the total amount of premiums paid until the date of the transfer.

What are the Maturity Return Requirements Under Section 10 (10D) of the Income Tax Act?

Not all maturity returns qualify for the exemption of Tax. To be eligible, the following conditions should be met :

For policies before 1 April 2012 and after 1 April 2003, the premiums paid vs. the sum assured are not limited. The entire maturity benefit received by the policyholder is tax-free.
For policies issued after 1st April 2012, the premiums paid cannot exceed 10 % of the sum assured amount for the maturity benefit to be exempted from tax. Any extra portion exceeding 10 % will be taxable income.

For unit-linked insurance Plans issued after February 1, 2023, only if the annual premium paid does not exceed ₹2.5 lakhs will the maturity benefit qualify for the tax exemption under the section. If the premium exceeds ₹2.5 lakhs in any year, the maturity benefit will be partially taxable.

Wrapping it Up!

Section 10(10D) of the Income Tax Act 1961 provides significant tax benefits for life insurance policyholders. This section ensures that the proceeds from eligible policies remain tax-exempt under specified conditions, providing financial security to beneficiaries without the burden of taxation.

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

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

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FAQ's

What is 10(10D) in Insurance?

Ans: Section 10(10D) of the Income Tax Act 1961 deals with tax benefits and deductions for life insurance policies. According to this section, the proceeds from the life insurance policy are exempt from tax if certain criteria are met.
What are the benefits of section 10(10D)?

Ans: The section's benefit is that it exempts tax on the sum assured amount, maturity benefit, and surrender value under certain conditions.
What comes under Section 80DDB?

Ans: Section 80DDB offers higher deductions for medical expenses related to specific ailments like cancer, neurological diseases, and kidney diseases. It applies to expenses for your parents or dependent parents.
What is the section 10(10D) exemption limit?

Ans: There is no upper limit on the exemption amount. However, the policy must adhere to certain conditions mentioned in the article.

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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.

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