Draft Income Tax Rule 59 – Computation of income chargeable to tax under section 92(2)(l) of the Act

Rule 59 of the Draft Income-tax Rules, 2026 lays down the method for computing income chargeable to tax under Section 92(2)(l) where any sum, including bonus, is received under a life insurance policy during a tax year. The rule differentiates between the first tax year of receipt and subsequent tax years. In the first tax year, taxable income is calculated as the aggregate sum received (A) minus the total premium paid up to the date of receipt (B), provided such premium has not been claimed as deduction under any other provision of the Act. In subsequent tax years, the taxable income is computed as the aggregate sum received in that year (C) minus the eligible premium paid up to the date of receipt (D), excluding premiums already claimed as deduction or those previously adjusted while computing taxable income in earlier years under this rule. The rule clarifies that “sum received” includes any amount received under a life insurance policy that is not excluded from total income under Schedule II (Table: Sl. No. 2), but specifically excludes amounts received under a unit linked insurance policy (ULIP) and income covered under Section 92(2)(d). Overall, Rule 59 introduces a structured formula to ensure proper taxation of life insurance proceeds while preventing duplication of premium deductions.

Extract of Rule No. 59 of Draft Income-tax Rules, 2026

Rule 59

Computation of income chargeable to tax under section 92(2)(l) of the Act

(1) For the purposes of section 92(2)(l), if a person receives any sum, including the amount allocated by way of bonus, during a tax year under a life insurance policy, then the income chargeable to tax under the said section shall be computed in the following manner —

(i) where the sum is received for the first time under the life insurance policy during the tax year (hereinafter referred to as first tax year), the income chargeable to tax in the first tax year shall be computed in accordance with the formula, —

A-B

where, —

A = the sum or aggregate of sum received under the life insurance policy during the first tax year; and

B = the aggregate of the premium paid during the term of the life insurance policy till the date of receipt of the sum in the first tax year that has not been claimed as deduction under any other provision of the Act;

(ii) where the sum is received under the life insurance policy during the tax year subsequent to the first tax year (hereinafter referred to as subsequent tax year), the income chargeable to tax in the subsequent tax year shall be computed in accordance with the formula, —

C-D

where, —

C = the sum or aggregate of sum received under the life insurance policy during the subsequent tax year; and

D = the aggregate of the premium paid during the term of the life insurance policy till the date of receipt of the sum in the subsequent tax year not being premium which—

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

(b) is included in amount ‘B’ or amount ‘D’ of this rule in any of the year or years preceding the tax year.

(2) For the purposes of this rule, the sum received under a life insurance policy would mean any amount, by whatever name called, received under such policy that is not excluded from the total income of the tax year in accordance with the provisions of Schedule II (Table: Sl.No.2), other than the sum—

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

(b) being the income referred to in section 92(2)(d).