Section 10(10D) of the Income Tax Act, 1961 provides tax benefits to policyholders who have purchased a life insurance policy. The provision aims to incentivize individuals to purchase life insurance policies by exempting the sum assured, bonus, and other proceeds received from a life insurance policy from income tax. In this blog, we will look at the provisions of section 10(10D) in detail.
Applicability of Section 10(10D):
Section 10(10D) applies to all life insurance policies issued on or after April 1, 2003. It is also applicable to policies issued before April 1, 2003, if the premium paid in any financial year does not exceed 20% of the sum assured. Therefore, if the premium paid exceeds this limit, the tax benefits under section 10(10D) will not apply.
Tax Exemption under Section 10(10D):
Section 10(10D) provides tax exemption to policyholders under the following circumstances:
The sum is received on the maturity of the policy: If the policy reaches its maturity date and the policyholder receives the sum assured, bonus, and other proceeds, they are also exempt from tax. Any other amount received under the policy: If any other amount is received under the policy, it will be exempt from tax if the premium paid for any financial year does not exceed 10% of the sum assured.
TDS on Section 10(10D):
There is no TDS (Tax Deducted at Source) on any sum received under a life insurance policy that meets the conditions of section 10(10D). This means that the policyholder will receive the full amount of the sum assured, bonus, and other proceeds without any deduction of tax at source.
Non-Applicability of Section 10(10D):
While section 10(10D) provides tax benefits to policyholders, there are certain situations where the provisions do not apply. For instance:
Any sum received under a life insurance policy, which has been issued on or after April 1, 2012, and the premium paid in any financial year exceeds 10% of the actual capital sum assured is not eligible for tax exemption under section 10(10D).
here are some frequently asked questions about section 10(10D) of the Income Tax Act:
What is section 10(10D) of the Income Tax Act?
Section 10(10D) of the Income Tax Act provides tax benefits to policyholders who have purchased a life insurance policy. The provision exempts the sum assured, bonus, and other proceeds received from a life insurance policy from income tax.
When does section 10(10D) apply?
Section 10(10D) applies to all life insurance policies issued on or after April 1, 2003. It is also applicable to policies issued before April 1, 2003, if the premium paid in any financial year does not exceed 20% of the sum assured.
Is TDS applicable on the sum received under section 10(10D)?
No, there is no TDS (Tax Deducted at Source) on any sum received under a life insurance policy that meets the conditions of section 10(10D).
Are there any situations where section 10(10D) does not apply?
Yes, there are certain situations where the provisions of section 10(10D) do not apply. For instance, any sum received under a keyman insurance policy is not eligible for tax exemption under section 10(10D). Additionally, any sum received under a life insurance policy, which has been issued on or after April 1, 2012, and the premium paid in any financial year exceeds 10% of the actual capital sum assured is not eligible for tax exemption under section 10(10D).
Is it necessary to meet certain conditions to be eligible for tax exemption under section 10(10D)?
Yes, policyholders must meet certain conditions to be eligible for tax exemption under section 10(10D). For instance, the premium paid for any financial year must not exceed 10% of the sum assured to be eligible for tax exemption under the provision. Additionally, if the premium paid exceeds 20% of the sum assured for policies issued before April 1, 2003, the tax benefits under section 10(10D) will not apply.
Is it advisable to consult a tax professional for specific advice regarding section 10(10D)?
Yes, it is always advisable to consult a tax professional for specific advice regarding one’s tax situation. Tax laws are subject to change, and a tax professional can provide personalized guidance based on the individual’s circumstances.
