Section 10(10D)- Tax Exemption on Life Insurance Policy Maturity/Death Benefits

Section 10(10D) provides tax exemption on amounts received from a life insurance policy, including:

• Maturity proceeds
• Death benefits
• Surrender value
• Bonus amounts

Key Conditions for Tax Exemption

1. For Policies Issued Before 1st April 2023

✅ Fully tax-exempt if:

• Premiums ≤ 10% of sum assured(for policies issued after 1st April 2012)
• Premiums ≤ 20% of sum assured(for policies issued before 1st April 2012)

❌ Taxable if:

• Premiums exceed the above limits (only excess proceedstaxed)

2. For Policies Issued On/After 1st April 2023

✅ Fully tax-exempt only for death benefits

❌ Maturity proceeds taxable (added to income under “Income from Other Sources”)
Exception: ULIPs (if premium ≤ ₹2.5 lakh/year, exempt under Section 10(10D))

Examples of Tax Treatment Under Section 10(10D)

Example 1: Traditional Policy (Issued Before 2023) – Maturity Benefit Exempt

Policy Details:

• Sum Assured: ₹10 lakh
• Annual Premium: ₹80,000 (8% of sum assured)
• Maturity Value: ₹15 lakh

Tax Treatment:

• Since premium (8%) < 10% of sum assured → Entire ₹15 lakh is tax-free

Example 2: Policy with High Premium (Issued After 2012) – Partially Taxable

Policy Details:

• Sum Assured: ₹10 lakh
• Annual Premium: ₹1.2 lakh (12% of sum assured)
• Maturity Value: ₹18 lakh

Tax Treatment:

• Premium (12%) > 10% limit → Excess premium policy
• Taxable Portion = (Total Received × (Premium % above limit / Total Premium %))
  = ₹18 lakh × (2% / 12%) = ₹3 lakh taxable
• Exempt Amount = ₹15 lakh

Example 3: Policy Issued in 2023 – Maturity Now Taxable

Policy Details:

• Sum Assured: ₹10 lakh
• Annual Premium: ₹1 lakh
• Maturity Value (2028): ₹12 lakh

Tax Treatment:

• Since policy issued after 1st April 2023→ ₹12 lakh fully taxable (unless death benefit)

Example 4: Death Claim (Always Exempt)

Policy Details:

• Sum Assured: ₹20 lakh
• Death Benefit Paid: ₹25 lakh
• Policy Issued: 2024

Tax Treatment:

• Death benefits always exempt→ ₹25 lakh tax-free (even for post-2023 policies)

Comparison: Old vs New Tax Rules

Key Takeaways

✔ Death claims remain tax-free forever

⚠ Post-April 2023 maturity proceeds now taxable (except ULIPs ≤ ₹2.5L/yr)

💰 For older policies, check premium % to determine exemption

📜 Surrender value taxed similarly to maturity benefits