There is general perception among people that amount received on maturity of life insurance is exempt from income tax. However the same is not true.

Receipt from life insurance may occasion on 2 events:

1. On death of the person insured (Death proceeds)

2. On maturity of the policy in the normal course (maturity proceeds)

In the case of death proceeds (i.e amount paid to nominee on death of insured person) the whole amount is exempted from tax u/s 10(10D).

However in case of maturity proceeds (i.e amount paid in case other than death) the exemption u/s 10(10D) will be available as below:

Policy issued between Type of Insured person % of premium w.r.t sum assured Taxability TDS u/s 194DA
Prior to 01.04.2003 Any Any Fully Exempt u/s 10(10D) Not Applicable
01.04.2003 to 31.03.2012 Any <=20% Fully Exempt u/s 10(10D)
>20% Net Return = (Maturity proceeds – Investment) will be fully taxable
On or after 01.04.2012 Any <=10% Fully Exempt u/s 10(10D)
>10% Net Return = (Maturity proceeds – Investment) will be fully taxable
On or after 01.04.2013 Normal Person <=10% Fully Exempt u/s 10(10D) No TDS if total payment < Rs 1,00,000

TDS Rate:
01.10.14 to 31.03.16 – 2%
01.04.16 to 31.08.19- 1%
w.e.f 01.09.19 – 5%

>10% Net Return = (Maturity proceeds – Investment) will be fully taxable
Person suffering from disability or disease covered u/s 80U or 80DDB <=15% Fully Exempt u/s 10(10D)
>15% Net Return = (Maturity proceeds – Investment) will be fully taxable

For Example– Say Mr X has taken a life insurance policy of sum assured Rs 2.50 lacs for 5 years on 01.07.2013 and paying an annual premium of Rs 50,000 (i.e more than 10% of sum assured).

He received a gross sum of Rs 2.80 lacs on maturity (i.e 30.06.2018) and insurance company has deducted TDS @ 1% on 2.80 Lacs i.e Rs 2800 which has got reflected in 26AS of FY 2018-19 of Mr X .

In such a situation the proceeds from life insurance will not be exempt from tax since premium paid is > 10% (assuming Mr X is not suffering from disability or disease u/s 80U or 80DDB).

Mr X should offer income of Rs 30,000 (i.e Rs 2.80 lacs – 2.50 Lacs) as Income from other sources which will be taxable at slab rate.

He need to claim TDS of Rs 2800.

Depending upon his slab rate of tax, net tax either to be paid or will be refunded.

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9 Comments

  1. Vikash says:

    In your example, if Mr. X received Rs. 230000.00 on maturity and TDS deducted @1% Rs. 2300.00. Then how can get refund of this amount of TDS and where to show this loss of Rs. 20000.00 in ITR.

  2. CA Sumant says:

    Dear Srikant,
    Section 10(10D) start with the words “Any sum received under a life insurance policy, including the sum allocated by way of bonus on such policy” Meaning thereby total payment i.e. sum assured as well as bonus should be treated as Income.

    Any other opinions with extra analysis are welcome.

  3. KIRAN says:

    If the policy is ULIP and being it market linked(thus capital asset), if we receive fund value, can we take and deduct indexed cost of acquisition and disclose it under Capital Gain Head of income?

      1. vipul sood says:

        There is n clarification in this regard the section says proceeds of insurance policy will be taxable. It does not say that the tax has to be paid on difference. kindly comment

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