TDS on Payment in Respect of Life Insurance Policy [Section 194DA]

R.S. Kalra 29 Nov 2025 8,514 Views 0 comment Print Income Tax | Articles, Featured

Section 194DA mandates deduction of TDS on payments made to a resident under a life insurance policy, including bonuses, where such receipts are not exempt under Section 10(10D). TDS is deducted at payment or credit, whichever is earlier, and applies only when the aggregate payout in a financial year is ₹1,00,000 or more. The rate is 5%, reduced to 2% from 1 October 2024, and applies only to the income component of the payout, not the total amount received. The recipient may avoid or reduce TDS by filing Form 13 or submitting Form 15G/15H. Income taxable from non-exempt policies is computed under Section 56(2)(xiii) using Rule 11UACA, which allows deduction of premiums not claimed under other provisions. ULIPs not exempt under Section 10(10D) are taxable as capital gains under Section 45(1B), with Rule 8AD prescribing the method of computation. Various conditions relating to premium limits, policy issue dates, and exemptions determine taxability on maturity or surrender.

194DA. Payment in respect of life insurance policy

Any person responsible for paying to a resident any sum under a life insurance policy, including the sum allocated by way of bonus on such policy, other than the amount not includible in the total income under clause (10D) of section 10, shall, at the time of payment thereof, deduct income-tax thereon at the rate of two per cent on the amount of income comprised therein:

Provided that no deduction under this section shall be made where the amount of such payment or, as the case may be, the aggregate amount of such payments to the payee during the financial year is less than one hundred thousand rupees.]

TDS on Payment in Respect of Life Insurance Policy [Section 194DA]

Who is the payer	Any person paying any sum under life insurance policy, including the sum allocated by way of bonus on such policy other than the amount not includible in the total income under section 10(10D)
Who is the recipient	A resident person
Payment covered	Sum under life insurance policy, including the sum allocated by way of bonus
At what time TDS to be deducted.	At the time of payment or at the time of credit whichever is earlier
Maximum amount which can be paid without tax deduction	If the amount of payment is less than `1,00,000/-
Rate at which TDS to be deducted	5% 2% w.e.f.01.10.2024
When the provisions are not applicable	If payment which is exempt under section 10 (10D).
Is it possible to get the payment without tax deduction or with lower tax deduction	The recipient can make an application in Form No. 13 to the Assessing Officer for lower tax deduction or no tax deduction. Also form 15G OR 15H can be submitted.

1. Who is responsible to deduct tax under section 194DA?

2. When to Deduct TDS under section 194DA?

Tax shall be deducted at the time of payment thereof.

3 . Threshold Limit

No deduction under this section shall be made where the amount of such payment or, as the case may be, the aggregate amount of such payments to the payee during the financial year is less than `1,00,000.

4. When a declaration is submitted in form 15G/15H under section 197A

If a declaration is submitted under section 197A by the recipient to the payer along with his/her PAN, then no tax is deductible.

5. Rate of TDS under section 194DA

The rate of tax under section 194DA is 5% on “only Income Part” of the payment made under LIP. The Finance (No. 2) Act, 2024 reduced the rate to 2% w.e.f. 01.10.2024.

6. Calculation of the income component in an insurance policy

To calculate the income part of an insurance policy, firstly we should understand the following and relevant provisions and rules of the Income Tax Act—

(A) Exemption under Section 10(10D)

(B) Taxability and classification of income (Section 2 and Section 56); and

(D) Deduction under Section 80C

(E) TDS u/s 194DA

TDS on Payment in Respect of Life Insurance Policy [Section 194DA]

(A) Exemption under Section 10(10D)

The following amounts received under life insurance policies will not be exempt under Section 10(10D)

(a) any sum received under sub-section (3) of section 80DD or sub-section (3) of section 80DDA [clause (a) of section 10(10D)];

(b) any sum received under a keyman insurance policy [clause (b) of section 10(10D)].

The expression ‘keyman insurance policy’ is defined in Explanation 1;

(c) any sum received under a policy taken during the period between 1.4.2003 to 31.3.2012 if the premium payable for any of the years during the term of the policy exceeds twenty percent of the capital sum assured [clause (c) of section 10(10D)].

For the purpose of calculation ‘capital sum assured’ effect shall be given to Explanation to section 80C(3). Sums received on death of a person shall however not be taxable [first proviso to s. 10(10D)].

(d) any sum received under a policy issued on or after 1.4.2012 if the premium payable for any of the years during the term of the policy exceeds ten percent of the capital sum assured [clause (d) of section 10(10D)].

However, this shall not apply to any sum received on death of a person [first proviso to s. 10(10D)].

For the purpose of calculation ‘capital sum assured’ shall have the meaning assigned to it in Explanation to section 80C(3A) [Explanation 2 to section 10(10D)].

In respect of a policy issued to insure the life of a person with disability or a person with severe disability referred to in section 80U and also in respect of the person suffering from disease or ailment specified in rules made under s. 80DDB this clause shall apply only for policies issued from 1.4.2012 to 31.3.2013. [implication of the third proviso to s. 10(10D)]

(e) any sum received under a policy issued on or after 1.4.2013 if the premium payable for any of the years during the term of the policy exceeds fifteen percent of the capital sum assured [clause (d) of section 10(10D)] and the policy is for insurance on life of any person – (i) who is a person with disability or severe disability referred to in section 80U; or (ii) suffering from disease or ailment specified in rules made under section 80DDB. [Third proviso to s. 10(10D)]

(f) any sum received under any unit linked insurance policy issued on or after 1.2.2021 if the amount of premium payable for any of the previous years during the term of such policy exceeds `2,50,000. If a person has several such policies issued on or after 1.2.2021 then exemption shall be available only qua sums received under those ULIPs where aggregate of premium does not exceed `2,50,000.[4th and 5th provisos to s. 10(10D)]. Amounts received on death of a person shall continue to be exempt [6th proviso to s. 10(10D)][6th proviso upto 31.3.2024 and 8th proviso on or after 1.4.2024]

(g) any sum received under any life insurance policy other than unlit linked insurance policy issued on or after 1.4.2023 if the amount of premium payable for any of the previous years during the term of such policy exceeds `5,00,000 [6th proviso to section 10(10D)]. If a person has several such policies issued on or after 1.4.2023 then exemption shall be available only qua sums received under those LIPs where aggregate of premium does not exceed `5,00,000.[7th provisos to s. 10(10D)]. Amounts received on death of a person shall continue to be exempt [8th proviso to s. 10(10D)]

The Board has been granted power to issue guidelines for the removing of difficulty. However, the guidelines have to be issued with the previous approval of the Central Government and shall be laid before each House of Parliament. Such guidelines shall be binding on income-tax authorities and the assessee. [Ninth proviso to s. 10(10D)

(B) Section 56(2)(xiii) reads as under

(xiii) where any sum is received, including the amount allocated by way of bonus, at any time during a previous year, under a life insurance policy, other than the sum,

(a) received under a unit linked insurance policy;

(b) being the income referred to in clause (iv), which is not to be excluded from the total income of the previous year in accordance with the provisions of clause (10D) of section 10, the sum so received as exceeds the aggregate of the premium paid, during the term of such life insurance policy, and not claimed as deduction under any other provision of this Act, computed in such manner as may be prescribed.

Explanation.—For the purposes of this clause “unit linked insurance policy” shall have the meaning assigned to it in Explanation 3 to clause (10D) of section 10.

Explanation 3.— For the purposes of this clause, “unit linked insurance policy” means a life insurance policy which has components of both investment and insurance and is linked to a unit as defined in clause (ee) of regulation 3 of the IRDA (Unit Linked Insurance Products) Regulations, 2019 issued by the IRDA under the Insurance Act, 1938 (4 of 1938) and the IRDA Act, 1999 (41 of 1999);

(C) Manner of computation of taxable income from LIP under section 56(2)(xiii) [Notification No. 61/2023, dated 16.08.2023]:

Accordingly, the CBDT has, vide this notification, inserted Rule 11UACA to compute the income chargeable to tax under section 56(2)(xiii). Where any person receives at any time during any previous year any sum under such LIP, then, the income chargeable to tax under section 56(2)(xiii) during the previous year in which such sum is received has to be computed in the following manner

Situation

Income chargeable to tax during the previous year in which such sum is received

(i)

where the sum is received for the first time under the LIP during the previous year (first previous year)

A-B, where

A = the sum or aggregate of sum received under the LIP during the first previous year; and

B = the aggregate of the premium paid during the term of the LIP till the date of receipt of the sum in the first previous year that has not been claimed as deduction under any other provision of the Act.

(ii)

where the sum is received under the LIP during the previous year subsequent to the first previous year (subsequent previous year)

C-D, where

C = the sum or aggregate of sum received under the LIP during the subsequent previous year; and

D = the aggregate of the premium paid during the term of the LIP till the date of receipt of the sum in the subsequent previous year not being premium which –

(a) has been claimed as deduction under any other provision of the Act; or

(b) is included in “B” or “D” in any of the previous year(s).

(D) Deduction under Section 80C

80C(5) Where, in any previous year, an assessee— (i) terminates his contract of insurance referred to in clause (i) of sub-section (2), by notice to that effect or where the contract ceases to be in force by reason of failure to pay any premium, by not reviving contract of insurance,— (a) in case of any single premium policy, within two years after the date of commencement of insurance; or (b) in any other case, before premiums have been paid for two years; or (ii) terminates his participation in any unit-linked insurance plan referred to in clause (x) or clause (xi) of sub-section (2), by notice to that effect or where he ceases to participate by reason of failure to pay any contribution, by not reviving his participation, before contributions in respect of such participation have been paid for five years; or (iii) then,—(a) no deduction shall be allowed to the assessee under sub-section (1) with reference to any of the sums, referred to in clauses (i), (x), (xi) and (xviii) of subsection (2), paid in such previous year; and (b) the aggregate amount of the deductions of income so allowed in respect of the previous year or years preceding such previous year, shall be deemed to be the income of the assessee of such previous year and shall be liable to tax in the assessment year relevant to such previous year.

(E) TDS u/s 194DA Payment in respect of life insurance policy

Any person responsible for paying to a resident any sum under a life insurance policy, including the sum allocated by way of bonus on such policy, other than amount exempt u/s Sec 10(10D) shall, at the time of payment thereof, deduct income-tax thereon at the rate of five per cent on the amount of income comprised therein

Provided that no deduction of TDS will be required where the aggregate amount of payments to the payee during the financial year is less than one hundred thousand rupees.

Sec 194DA: provides for TDS on non-exempt portion of life insurance i.e. where the premium payable in any one year was > 10/20/15% of the sum assured and the amount payable is ≥ 100,000
TDS at the rate of 5% [2% w.e.f. 1-10-2024 Finance (No. 2) Act, 2024] on income component of the sum paid by the person.

[Income – Total amount received (-) premium paid for which no deduction was claimed]

Ex (1) Mr Z has taken a policy for a premium payable of 6 lacs p.a. for a term of 10 years on 01/04/23. He will get a maturity amount of 90 lacs against a minimum sum assured of 75 lacs. Discuss the taxability assuming assessee opts out of Sec 115BAC

Sec 80C	Amount allowable as a deduction is upto a maximum of 10% of sum insured i.e. 75 lacs x 10% = 750,000 however restricted to 150,000	150,000 x 10 = 15,00,000 Allowed over life of policy
Sec 10(10D)	Since amount of premium does not exceed 10%, however exceeds 5 lacs p.a., the amount receivable on maturity	taxable
Sec 56(2)(xiii)	Computing taxable amount – Amount received	90,00,000
	Less: premium for which deduction was not claimed i.e. Total premium paid 60 lacs – 15 Lacs	(45,00,000)
	Taxable amount	45 lacs
Sec 194DA	TDS @ 2%	30 lacs x 2%= 60,000

Note: The taxable amount in above example is `45 Lacs i.e after reducing deduction claimed u/s 80C from the premium paid. The assessee will pay tax on `45 lacs. However, the insurance company will deduct TDS only on `30 lacs (`90 Lacs – `60 Lacs) i.e without reducing the deduction claimed u/s 80C. The insurance company will not consider whether the insured has claimed the deduction or not. The provisions of sec 56(2)(xiii) state that amount received is taxable after reducing the premium received which has not been claimed as deduction under any other provisions of Act. However, Sec 194DA states that insurance company shall deduct the tax on the income comprised therein. There is no reference of deduction claimed in sec 194DA of the Act. Further, the method of computation of income chargeable mentioned in Notification No. 61/2023, dated 16.08.2023 is also related with only Sec 56(2)(xiii) of the Act. There is no reference of sec 194DA in this notification. Moreover, the insurance company is not having any information that whether the insured has claimed the deduction under any provisions of the Act or not. Therefore, the TDS u/s 194DA will be deducted on Amount paid less Premium received.

7. Taxability on surrender or maturity of Unit Link Insurance Policy/ Policies (ULIPs)

Where any person receives at any time during any previous year,

1. any amount under a unit linked insurance policy,

2. to which exemption under clause (10D) of section 10 does not apply. including the amount allocated by way of bonus on such policy, then,

3. any profits or gains arising from receipt of such amount by such person shall be chargeable to income-tax under the head “Capital gains” and

4. shall be deemed to be the income of such person of the previous year in which such amount was received and the income taxable shall be calculated in such manner as may be prescribed

Note: Earlier ULIPs which were not exempt on account of the applicability of the fourth and fifth proviso of clause (10D) of section 10, were taxable as capital gain u/s 45(1B). However, w.e.f 01/04/2026 (from A.Y. 2026-27), all the ULIPs which as not exempt u/s 10(10D) are taxable as capital gains.

The central government has issued computation mechanism and guidelines for the purpose of computation of income of consideration received from eligible ULIPs. The computation of Income of consideration received from eligible ULIPs can be analyzed as below in the light of new rules, guidelines and amendments in the Income Tax Act.

Sec 45(1B): Capital Gains

(a) Capital Asset Sec 2(14): Thus a ULIP policy not eligible for an exemption then it is capital asset u/s 2(14) and is chargeable to capital gains on the transfer. Thus ULIP that are issued on or after 1 Feb, 2021 and have premium exceeding 2.50 lakhs in any previous year during tenure of the policy shall now be taxed at the time of maturity. Further, the Finance Act, 2025 have amended section 2(14)

Exception: Amount received by nominee at the time of death. [Sec 2(14)]

(b) Computing Capital Gains: The procedure for computing capital gains for such a policy is given u/s 45(1B)

(i) Such ULIP will be treated as equity oriented. And the condition of 65% or 90% must be satisfied throughout the term of such insurance policy.

(ii) The Provisions of Sec 112A & 111A will be as applicable to these ULIP plans. Also the STT Act has been amended to provide for STT at the time of maturity or partial redemption of these units

(iii) These shall be taxable in the year of receipt. Bonus received on policy also to be taxed.

(iv) Period of Holding to be 12 months or more to be treated as LTCG and accordingly taxed at 12.5% without indexation benefit on the amount of gains exceeding 1.25 lakhs as provided in sec 112А.

Thus, the amount received under any other ULIP(s) issued on or after 1.2.2021 (referred to as specified ULIPs) to which exemption under section 10(10D) does not apply on account of applicability of the fourth and fifth provisos thereof (w.e.f A.Y. 2026-27, all ULIPs which are not exempt u/s 10(10D)), would be taxable under section 45(1B). The income from such specified ULIPs taxable is to be calculated in such manner as may be prescribed.

Accordingly, Rule 8AD prescribes the following manner to compute capital gains on receipt of amount under such specified ULIPs, Where any person receives at any time during any previous year any amount under such specified ULIP, including the amount allocated by way of bonus on such policy, then-

	Situation	Capital gains arising from receipt of amount during the previous year in which such amount is received
(i)	Where the amount is received for the first time under such specified ULIP during the previous year,	A-B, where A = the amount received for the first time under such specified ULIP during the previous year, including the amount allocated by way of bonus on such specified policy; and B = the aggregate of the premium paid during the term of such specified ULIP till the date of receipt of the amount as referred to in “A”
(ii)	Where the amount is received under such specified ULIP during the previous year, at any time after the receipt of the amount as referred to in (i)	C-D, where C = the amount received under such specified ULIP during the previous year, at any time after the receipt of the amount as referred to in (i) above, including the amount allocated by way of bonus on such policy. Note – The amount which has already been considered for calculation of taxable amount during the earlier previous years, would not be included in C” D = the aggregate of the premium paid during the term of such specified ULIP till the date of receipt of the amount as referred to in “C” as reduced by “B” i.e., the premium that has already been considered for calculation of taxable amount during the earlier previous year(s).

Situation

Capital gains arising from receipt of amount during the previous year in which such amount is received

(i)

Where the amount is received for the first time under such specified ULIP during the previous year,

A-B, where

A = the amount received for the first time under such specified ULIP during the previous year, including the amount allocated by way of bonus on such specified policy; and

B = the aggregate of the premium paid during the term of such specified ULIP till the date of receipt of the amount as referred to in “A”

(ii)

Where the amount is received under such specified ULIP during the previous year, at any time after the receipt of the amount as referred to in (i)

C-D, where

C = the amount received under such specified ULIP during the previous year, at any time after the receipt of the amount as referred to in (i) above, including the amount allocated by way of bonus on such policy.

Note – The amount which has already been considered for calculation of taxable amount during the earlier previous years, would not be included in C”

D = the aggregate of the premium paid during the term of such specified ULIP till the date of receipt of the amount as referred to in “C” as reduced by “B” i.e., the premium that has already been considered for calculation of taxable amount during the earlier previous year(s).

The capital gains as computed in above table would be deemed to be the capital gains arising from the transted if a unit of an equity-oriented fund set up under a scheme of to be the capital gains risingrising unit linked insurance policies.

8. The manner of calculating taxable income can be understood with the help of an example:

Particulars	Amount (`)
Annual Premium (More Than `2,50,000)	4,00,000
Withdrawal Amount On 21.12.2028	45,70,000
Annual Premium Paid Up to 01.04.2028 (Starting From 01.04.2021) – 4,00,000 * 8 Years	32,00,000
Long-Term Capital Gain In F.Y. 2028-29 (LTCG u/s 112A)	13,70,000
Maturity Amount On 31.03.2031	30,00,000
Remaining Premium Paid for 2 Years (From 01.04.2029 to 01.04.2030) – 4,00,000 * 2 Years	8,00,000
Long-Term Capital Gain In F.Y. 2030-31 (LTCG u/s 112A)	22,00,000

Mr. Neeraj invested a sum of `4,00,000 p.a. in ULIP from 01.04.2021 for a period of 10 years. Mr A received a sum of `45,70,000 on 21.12.2028 for such policy. On 31.03.2031 he again received a sum of `30,00,000 from such policy.

9. Whether section 45(1B) applies to ULIPs issued before 01.02.2021?

Before Amendment by Finance Act, 2025

Before the amendment by Finance Act, 2025, section 2(14) applies only if ULIP is not exempt under section 10(10D) by virtue of fourth and fifth provisos thereto. These provisos apply to policies issued on or after 1.2.2021. Therefore, there was an ambiguity as to whether policies issued prior to 1.2.2021 can qualify as capital asset or is it that the amount received under such ULIPs which are issued prior to 1.2.2021 will be taxed under the head ‘Income from Other Sources’?

Amounts received under ULIPs issued prior to 1.2.2021 will be taxable if – Premium payable for any of the years during the term of the policy exceeds 20% of the actual sum assured if the policy has been issued on or after 1.4.2003 but upto 31.3.2012; Premium payable for any of the years during the term of the policy exceeds 10% of the actual sum assured if the policy has been issued on or after 1.4.2012;

A question arises as to whether exemption will be available in respect of amount received under ULIP which has been issued on or after 1.2.2021 and the premium payable there under does not exceed `2,50,000 in any of the years during the term of the policy but the premia payable exceeds 10% of the actual capital sum assured?

Amounts received under ULIPs will NOT be taxable if – Premium payable for each of the years during the term of the policy is upto 20% of the actual sum assured if the policy has been issued on or after 1.4.2003 but upto 31.3.2012; Premium payable for each of the years during the term of the policy is upto 10% of the actual sum assured if the policy has been issued on or after 1.4.2012; In respect of policies issued on or after 1.2.2021 in addition to the above restriction of premium for any of the years not being in excess of 10% of sum assured, the premium payable for each of the years during the term of the policy is upto `2,50,000 [4th and 5th proviso to s. 10(10D)]

The provision for taxability is in clause (d) whereas the limit of `2,50,000 qua the policies issued on or after 1.2.2021 is in the proviso. In the circumstances, it appears that in respect of ULIPs issued on or after 1.2.2021, twin conditions will need to be satisfied to claim exemption under s. 10(10D) . Premium payable for each of the years during the term of the policy being not in excess of 10% of actual capital sum assured and total premium payable in respect of all the policies during each of the years during the term of the policy is excess of `2,50,000. Then, it should be taxable as Capital gains, at par with Equity oriented Mutual fund.

The ULIPs issued before 01.02.2021 and where the premium payable exceeds 10%/15%/20% of sum assured is taxable by virtue of clause (d) of sec 10(10D). The ULIPs issued on or after 01.02.2021, where the premium does not exceed `2,50,000/- in any financial year, but the premium exceeds 10% of sum assured is also taxable.

However, the head of income where such ULIPs will be taxable is uncertain. The provisions of Sec 56(2)(xiii) have specifically excluded ULIPs. The amendment in sec 2(14), 45(1B) and 112A apply to ULIPs which are taxable on account of fourth and fifth proviso of sec 10(10D). It does not cover other ULIPs. Therefore, it is not clear that whether these ULIPs (other than those covered by fourth and fifth proviso) will be taxed under which head.

1. Bringing clarity in income on redemption of Unit Linked Insurance Policy Clause (10D) of section 10 provides for income-tax exemption on the sum received under a life insurance policy, including bonus on such policy. There is a condition that the premium payable for any of the years during the terms of the policy should not exceed ten per cent of the actual capital sum assured.

2. It may be pertinent to note that to restrict the benefit of exemption under clause (10D) of section 10, to small and genuine cases of life insurance, the Finance Act, 2021, inter alia, made amendments to clause (10D) of section 10 to provide that the exemption under this clause shall not apply with respect to any unit linked insurance policy or policies issued on or after the 01.02.2021, if the amount of premium or aggregate amount of premium payable during the term of such policy or policies exceeds Rs. 2,50,000;

3. It is noted that ULIP is a capital asset only when the exemption under clause (10D) of section 10 does not apply on such policies on account of the applicability of the 4th and 5th proviso and accordingly, taxation as capital gains in case of only such ULIPs. However, in case of life insurance policy (other than a ULIP), the sum received is chargeable to income-tax under “Income from other sources” for any such policy to which exemption under clause (10D) of section 10 does not apply.

4. Further, any sum received under an insurance policy as provided in sub-clauses (a) to (d) read with the provisos to clause (10D) to section 10 are not eligible for exemption under clause (10D) of section 10. Such sub-clauses are applicable to unit-linked insurance policy as well.

After Amendment by Finance Act, 2025

It is, therefore, proposed to rationalise the provisions for unit-linked insurance policies, so as to provide that,–

(I) ULIPs to which exemption under clause (10D) of section 10 does not apply, is a capital asset [clause (14) of section 2];

(II) the profit and gains from the redemption of ULIPs to which exemption under clause (10D) of section 10 does not apply, shall be charged to tax as capital gains [sub-section (1B) of section 45]; and

(III) ULIPs to which exemption under clause (10D) of section 10 does not apply, shall be included in the definition of equity oriented fund [clause (a) of Explanation to section 112A]

These amendments will take effect from the 1st day of April, 2026 and shall accordingly, apply in relation to the assessment year 2026-27 and subsequent assessment years.

As per the amendments by the Finance Act, 2025 when the ULIPs issued before 01.02.2021 and where the premium payable, exceeds 10%/15%/20% of sum assured is taxable by virtue of clause (d) of sec 10(10D). The ULIPs issued on or after 01.02.2021, where the premium does not exceed `2,50,000/- in any financial year, but the premium exceeds 10% of sum assured is also taxable. It will be taxable as Capital gains, at par with Equity oriented Mutual Fund w.e.f. 01.04.2025.

Under Section 10(10D), exemption is provided for ULIPs issued on or after February 1, 2021, where the premium or aggregate premium payable during the policy term does not exceeds INR 2,50,000. For ULIPs not covered under Section 10(10D), they are classified as a capital asset, and the proceeds are taxable as capital gains. However, life insurance policies (other than ULIP) not covered by provision of section 10(10D) are chargeable as income from other sources under section 56 of the ITA. Due to this discrepancy, uncertainty arose regarding the taxation of ULIPs whose premiums exceed the specified threshold. To resolve this confusion, the Finance Act, 2025 explicitly classifies ULIPs not covered under Section 10(10D) as capital assets, aligning them with equity-oriented funds for tax purposes. As a result, redemption proceeds from such ULIPs will now be taxed under the head capital gains as per section 45 of the ITA. The taxability of ULIP as per existing provisions vis-à-vis amended provisions is tabulated as under –

Scenario	Existing	Applicable w.e.f 01.04.2025
Premium ≤ 10%/20% of the sum assured and Premium ≤ INR 2.5L/INR 5L	Exempt U/S 10(10D)	No Change
Premium ≤ 10%/20% of the sum assured and Premium>INR 2.5L/INR 5L	– Taxable As Capital Gain – At Par With Equity Oriented Mutual Fund	No Change
Premium > 10%/20% of the sum assured and Premium ≤ INR 2.5L/INR 5L	Taxable, But Not Specified Under Which Head.	– Taxable As Capital Gain – At Par With Equity Oriented Mutual Fund

Therefore, the Finance Act, 2025 has brought clarity about head of income under which the maturity amount of all the taxable ULIPs will be charge to tax.

Further. the CBDT has issued following guidelines on the taxability of ULIPs and LIPs:

Circular No. 15/2023, dated 16-8-2023

Guidelines under clause (10D) of section 10 of the Income-tax Act, 1961 — reg.

Clause (10D) of section 10 of the Income-tax Act, 1961 (the Act) provides for income-tax exemption on any sum received under a life insurance policy, including the sum allocated by way of bonus on such policy subject to certain exclusions.

2. The Finance Act, 2023 (Finance Act), inter alia—

I. amended clause (10D) of section 10 of the Act by substituting the existing sixth proviso with the new sixth, seventh and eighth provisos to, inter alia, provide that:

(i) with effect from assessment year 2024-25, the sum received under a life insurance policy, other than a unit linked insurance policy, issued on or after the 1st day of April, 2023, shall not be exempt under the said clause if the amount of premium payable for any of the previous years during the term of such policy exceeds `5,00,000 [sixth proviso];

(ii) if premium is payable for more than one life insurance policy, other than a unit linked insurance policy, issued on or after 01.04.2023, the exemption under the said clause shall be available only with respect to such policies where the aggregate premium does not exceed `5,00,000 for any of the previous years during the term of any of those policies [seventh proviso];

(iii) the sixth and seventh provisos shall not apply in case of any sum received on the death of a person [eighth proviso]

II. inserted a new clause (xiii) in sub-section (2) of section 56 to provide that where any sum is received, including the amount allocated by way of bonus, at any time during a previous year, under a life insurance policy, other than the sum,-

(a) received under a unit linked insurance policy, or

(b) being the income referred to in clause (iv) of sub-section 2,

which is not to be excluded from the total income of the previous year in accordance with the provisions of clause (10D) of section 10, the sum so received as exceeds the aggregate of the premium paid, during the term of such life insurance policy, and not claimed as deduction in any other provision of the Act, computed in the manner as may be prescribed shall be chargeable to income-tax under the head “Income from other sources”;

III. inserted a sub-clause (xviid) in clause (24) of section 2 to provide that income shall include any sum referred to in clause (xiii) of sub-section (2) of section 56.

2.1 It may be noted that Finance Act, 2021 had earlier inserted, fourth to seventh provisos in clause (100) of section 10 to provide that the sum received under any unit linked insurance policy [ULIP] (except any such sum received on the death of a person), issued on or after the 01.02.2021 shall not be exempt under said clause, if the amount of premium payable for any of the previous years during the term of such policy exceeds `2,50,000 (fourth proviso). It was also provided that if the premium is payable for more than one ULIPs, issued on or after the 01.02.2021, the exemption under the said clause shall be available only with respect to such policies where the aggregate premium does not exceed `2,50,000 for any of the previous years during the term of any of the policies (fifth proviso).

Issuance of Guidelines for removal of difficulties

3. Ninth proviso to clause (10D) of section 10 of the Act also empowers the Central Board of Direct Taxes (Board) to issue guidelines, with the previous approval of the Central Government, in order to remove any difficulty which arises while giving effect to the provisions of the said clause. In exercise of the powers under this proviso, Board, with the previous approval of the Central Government, hereby issues the following guidelines.

Guidelines

4. In these guidelines:—

(i) “eligible life insurance policy” means any life insurance policy (other than unit linked insurance policy) issued on or after 01.04.2023;

(ii) “consideration” means sum received (of any nature including bonus) under an eligible life insurance policy;

(iii) “current previous year” means the previous year in which consideration is received and its taxability is being examined.

4.1 Consideration received during the previous year under an eiigible life insurance policy shall be exempt or not exempt under clause (10D) of section 10 of the Act, subject to the satisfaction of other provisions of said clause. The same are explained by way of examples of different situations:—

4.2 Situation 1: No consideration is received by the assessee on any eligible life insurance policies during any previous year preceding the current previous year or consideration has been received on such eligible life insurance policies but has not been claimed exempt. The exemption under clause (10D) of section 10 of the Act shall be determined as under:

(i) If the assessee has received consideration, during the current previous year, under one eligible life insurance policy only and the amount of premium payable on such eligible life insurance policy does not exceed `5,00,000 for any of the previous years during the term of such eligible life insurance policy, such consideration shall be eligible for exemption under the said clause (10D) subject to fulfilment of other conditions;

(ii) If the assessee has received consideration, during the current previous year, under one eligible life insurance policy only and the amount of premium payable on such eligible life insurance policy exceeds `5,00,000 for any of the previous years during the term of such eligible life insurance policy, such consideration shall not be eligible for exemption under the said clause (10D);

(iii) If the assessee has received consideration, during the current previous year, under more than one eligible life insurance policies and the aggregate of the amount of premium payable on such eligible life insurance policies does not exceed `5,00,000 for any of the previous years during the term of such eligible life insurance policies, such consideration shall be eligible for exemption under the said clause (l0D) subject to fulfilment of other conditions;

(iv) If the assessee has received consideration, during the current previous year, under more than one eligible life insurance policies and the aggregate of the amount of premium payable on such eligible life insurance policies exceeds `5,00,000 for any of the previous years during the term of such eligible life insurance policies, the consideration under only such eligible life insurance policies shall be eligible for exemption under the said clause (l0D) where aggregate of the amount of the premium payable does not exceed `5,00,000 for any of the previous years during their term (Refer Examples) subject to fulfilment of other conditions.

4.3 Situation 2: Consideration has been received by the assessee under anyone or more eligible life insurance policies during any previous year preceding the current previous year and it has been claimed exempt under clause (l0D) of section 10 of the Act. Such eligible life insurance policies are referred as “old eligible life insurance policies” in this paragraph and corresponding examples and reference to eligible life insurance policies in this paragraph and corresponding examples shall not include old eligible life insurance policies. The exemption under clause (10D) of section 10 of the Act shall be determined as under:

(i) If the assessee has received consideration, during the current previous year, under one eligible life insurance policy only and aggregate amount of premium payable on such eligible life insurance policy and old eligible life insurance policies does not exceed `5,00,000 for any of the previous year during the term of such eligible life insurance policy, the consideration under such eligible life insurance policy shall be eligible for exemption under the said clause (10D) provided it is not excluded under sub-clauses (a) to (d) of said clause (10D);

(ii) If the assessee has received consideration, during the current previous year, under one eligible life insurance policy only and aggregate amount of premium payable on such eligible life insurance policy and old eligible life insurance policies exceeds `5,00,000 for any of the previous year during the term of such eligible life insurance policy, the consideration under such eligible life insurance policy shall not be eligible for exemption under the said clause (10D);

(iii) If the assessee has received consideration, during the current previous year, under more than one eligible life insurance policies and aggregate of the amount of premium payable on such eligible life insurance policies and old eligible life insurance policies does not exceeds `5,00,000 for any of the previous years during the term of such eligible life insurance policies, such consideration shall be eligible for exemption under the said clause (10D) provided it is not excluded under sub-clauses (a) to (d) of said clause (10D);

(iv) If the assessee has received consideration, during the current previous year, under more than one eligible life insurance policies and aggregate of the amount of premium payable on such eligible life insurance policies and old eligible life insurance policies exceeds `5,00,000 for any of the previous years during the term of such eligible life insurance policies, consideration under only such eligible life insurance policies shall be eligible for exemption under the said clause (10D) where aggregate amount of premium along with the aggregate amount of premium of old eligible life insurance policies does not exceed `5,00,000 for any of the previous years during the term of any of such eligible life insurance policies (Refer examples) provided it is not excluded under sub-clauses (a) to (d) of said clause (10D).

4.4 The above guidelines are explained with the help of the following examples:

Example 1:

Life Insurance Policy	A
Date of issue	01.04.2013
Annual premium (`)	6,00,000
Sum assured (`)	60,00,000
Consideration received as on 01.11.2023 on maturity	70,00,000

Taxability as per sixth proviso to clause (10D) of section 10 of the Act:

The sum received on maturity will be exempt under clause (l0D) of section 10 of the Act as the policy has been issued before 01.04.2023 and accordingly not covered by the 6th to 8th provisos to the said clause (10) of section 10 of the Act, as substituted by Finance Act, 2023.

Example 2:

The assessee has the following policy which satisfies all the conditions laid down in clause (10D) of section 10 of the Act (other than the conditions provided under the sixth and seventh proviso of the said clause, applicability whereof is being explained in the example). The assesse did not receive any consideration under any other eligible life insurance policy in earlier previous years preceding the previous year 2033-34.

Life Insurance Policy	A
Date of issue	01.04.2023
Annual premium (`)	6,00,000
Sum assured (`)	60,00,000
Consideration received as on 01.11.2033 on maturity	70,00,000

Taxability as per sixth proviso to clause (10D) of section 10 of the Act:

The consideration received will not be exempt under clause (10D) of section 10 of the Act as per the provisions of sixth proviso since the annual premium payable on the policy exceeded `5,00,000.

Example 3:

The assessee has the following policy which satisfies all the conditions laid down in clause (l0D) of section 10 of the Act (other than the conditions provided under the sixth and seventh proviso of the said clause, applicability whereof is being explained in the example). The assessee did not receive any consideration under any other eligible life insurance policy in earlier previous years preceding the previous year 2033-34.

Life Insurance Policy	A
Date of issue	01.04.2023
Annual premium (`)	5,00,000
Sum assured (`)	50,00,000
Consideration received as on 01.11.2033 on maturity	52,00,000

Taxability as per sixth proviso to clause (10D) of section 10 of the Act:

The consideration received will be exempt under clause (10D) of section 10 of the Act as the provisions of sixth proviso will not apply since the annual premium payable on the policy does not exceed `5,00,000 in any of the previous years during the term of the policy.

Example 4:

The assessee has the following policies all of which satisfy all the conditions laid down in clause (l0D) of section 10 of the Act (other than the conditions provided under the sixth and seventh proviso of the said clause, applicability whereof is being). The assessee did not receive any consideration under explained in the example any other eligible life insurance policy in earlier previous years preceding the previous year 2033-34.

Life Insurance Policy	A	B
Date of issue	01.04.2023	01.04.2023
Annual premium (`)	4,50,000	5,50,000
Sum assured (`)	45,00,000	55,00,000
Consideration received	52,00,000	60,00,000