Section 10(10D) of the Income Tax Act offers tax exemptions on amounts received under life insurance policies, including any bonuses, subject to certain conditions. To qualify for the exemption, the premium on life insurance or Unit Linked Insurance Policies (ULIPs) issued after April 1, 2012, must not exceed 10% of the sum assured. Additionally, the total premium paid during the policy term must not exceed Rs. 2,50,000 for ULIPs or Rs. 5,00,000 for other life insurance policies. If these conditions are not met, the amount received may be taxed as capital gains (for ULIPs) or income from other sources (for other policies). The Finance Bill 2025 clarifies the tax treatment of ULIPs. Even if the premium exceeds the prescribed limit, previous provisions created ambiguity about whether the income should be taxed under capital gains or other sources. The new amendment now ensures consistent tax treatment for both ULIPs and other life insurance policies, with the sum being charged under capital gains or other sources when the exemption is not applicable.
Page Contents
- FAQs:- Bringing clarity in income on redemption of Unit Linked Insurance Policy – Budget 2025
- Q.1. What are the provisions relating to amount received under a life insurance policy?
- Q.2. What conditions are to be fulfilled to claim exemption under Section 10(10D)?
- Q.3. What happens if the conditions provided under Section 10(10D) are not fulfilled?
- Q.4. What changes have been introduced through the Finance Bill 2025?
FAQs:- Bringing clarity in income on redemption of Unit Linked Insurance Policy – Budget 2025
Q.1. What are the provisions relating to amount received under a life insurance policy?
Ans. Section 10(10D) provides for income-tax exemption on the sum received under a life insurance policy, including bonus on such policy, subject to certain conditions.
Q.2. What conditions are to be fulfilled to claim exemption under Section 10(10D)?
Ans. The conditions which are to be fulfilled to claim exemption under Section 10(10D) include: –
a. premium payable for any of the years during the terms of the policy (life insurance or ULIP) issued on or after 01.04.2012 should not exceed ten per cent of the actual capital sum assured; and
b. amount of premium or aggregate amount of premium payable during the term of such policy or policies should not exceed Rs. 2,50,000 (for Unit Linked Policy) or Rs. 5,00,000 (for other policy) for policies issued after certain dates;
Q.3. What happens if the conditions provided under Section 10(10D) are not fulfilled?
Ans. If the conditions are not fulfilled, the sum received under insurance policy may be charged to tax as capital gains (for unit-linked insurance policy) or income from other sources income (for policy other than ULIP)
Q.4. What changes have been introduced through the Finance Bill 2025?
Ans. In the present provisions, in the case of Unit Linked Insurance Policy, even where payable premium exceeded 10 percent of the sum assured, the sum received on redemption was not being charged to tax as ‘capital gain’ under sub-section (1B) of section 45. Even though it was not exempt, there was ambiguity regarding the head of chargeability.
The current amendment has now made the tax treatment given to all ULIP policies consistent.
Thus, if exemption under Section 10(10D) does not apply, the sum received under both ULIP and other insurance policy shall be chargeable to tax under the head ‘capital gains’ or ‘income from other sources’, respectively.
