Tax Benefits of Section 10 of Income Tax Act

When considering tax benefits of insurance, we commonly consider the benefits of tax deduction for insurance premium paid under Section 80C for Life Insurance and Unit Linked Insurance Plans. Additionally, there are Section 80D tax benefits for health insurance premium payments. But there is another section of the Income Tax Act that provides tax benefits for payouts received from insurance policies. This is the relatively less discussed Section 10 of the Income Tax Act.

According to the provisions of Section 10(10D), all payments from your life insurance scheme are eligible for a tax exemption and are therefore not subject to taxation or income tax. The fact that incentives and surrendering values are also included in the exclusions under section 10 10(D) of the Income Tax Act of 1961 makes it even more intriguing. To understand and comprehend what is covered under section 10 (10D) of income tax act, keep reading.

A person can enjoy tax-exempt status on the lumpsum assured and accrued premium (if any) earned through their term life insurance policy claim under Section 10 (10D) of the IT Act, 1961 – that is maturity or death benefit. This exemption is available on various life insurance claims and also applies to the payments received from a Unit linked insurance plans having aggregate premium less than 2.5L in a financial year at maturity or even in case of premature withdrawal subject to applicable provisions.

Here are the various tax benefits that can be availed under Section 10 (10D) of the Income Tax Act, 1961:

• If the insurance premiums that were paid in a single year throughout the term of the policy for a policy bought between 1 April 2003 and 31 March 2012 are not over 20% of the insurance cover, one may qualify for the deductions under Section 10(10D).
• However, the premium amount should not be greater than 10% of the insured total if the policy is acquired after 1 April 2012.
• The exemption on life insurance obtained before 1 April 2013 does not surpass 15% of the guaranteed value in the event that the insured is seriously disabled or ill.
• Section 80U of the act lists the disabilities that fit within this group, such as developmental disorders, autism, and so on.
• Section 80DDB lists the illnesses that are covered by this waiver.

The payout at the time of policy maturity must comply with the following requirements in order to qualify for tax savings under section 10(10D) of income tax act.

• The compensation must be paid upon death.
• The benefit was not obtained for insurance issued in accordance with section 80DD (3) of the IT Act.
• The money paid out shouldn't be covered by the Keyman Insurance Plan.
• It cannot be a retirement or annuity payout.
• The benefits are not obtained through a group insurance policy supplied by the company.
• For plans obtained between the 1 April 2003, and the last day of March 2012, the insurance cost paid in any calendar year cannot be greater than 20% of the sum assured.
• The monthly amount should not exceed 10% of the sum guaranteed if the insurance is obtained after April 01, 2012.
• The annual insurance rate payment cannot be more than 15% of the policy's insurance cover. On or after April 1, 2013, the same would be obtained, and the coverage has to be for the lifespan of any individual who is:
• A person who meets the criteria for a serious handicap under section 80U of the IT Act of 1961.
• Someone who has ailments or issues as mentioned according to Section 80DDB of the IT Act.
• The sum you receive will be subject to tax deducted at source (TDS) in accordance with the following rules if the maturity value of your insurance is not exempted under section 10(10D) of income tax act:
• 10% TDS on the entire maturity value is applied if a PAN is provided.
• TDS of 20% is applied to the whole sum if PAN is not presented.

It is not surprising that the majority of individuals have been using insurance as a strategy for tax returns for many years. However, the real goal of these advantages is to provide a motivation for more people to purchase health insurance.

It is advised that you fully comprehend the numerous tax benefits provided by the various provisions of the Income Tax Act, 1961. Additionally, you must exercise caution and refrain from basing your acquisition entirely on the possible tax advantages. Comparing various term life insurance policies provided by the various companies, comprehending their elements, advantages, additions, limitations, and other terms & conditions, and then making a wise decision based on your requirements and financial objectives, tends to be advantageous. One simple way to do this is to undertake in-depth online information and analyze data from reputable sources. Before choosing an insurance provider, it's crucial to consider their history and dependability.

Budget 2021 introduced a key amendment under fourth proviso to Section 10(10D) that is applicable to Unit Linked Insurance Plans (ULIPs) that have a high annual premium. As per this amendment, Section 10 (10D) exemption is not applicable to ULIPs issued on or after 1 Feb 2021, if the annual premium payable exceeds Rs. 2.5 lakh in any year during the policy term.

The Budget announcement also introduced a 5^th proviso, which is covers instances when a single person is paying premiums for multiple ULIPs. The Rs. 2.5 lakh annual premium payment limit is also applicable in such cases. So, as per this Section 10(10D) amendment, the policy holder can avail Section 10(10D) benefits only for policies where the aggregate annual premium paid for all ULIPs is less than Rs. 2.5 lakh. However, these exclusions to Section 10 (10D) exemptions are not applicable in case of ULIP payouts received as death benefit of the insured person.

The following conditions must be met in order to qualify for tax exemptions within Section 10(10D) of Income Tax Act:

• Tax deductions are available for claims made under a life insurance policy, including death benefits and maturity benefits, including earned incentives.
• Tax reductions are available for all claims under life insurance policies.
• The demand for life insurance coverage is not subject to any maximum value.
• In accordance with Section 10(10D) of the Income Tax Act of 1961, both Indian and international life insurance companies are eligible for tax benefits.
• No tax deductible is available for the payout within the Keyman Insurance Policy.
• For life insurance policies purchased between 1 April 2003 and 31 March 2012, the monthly payments or premiums that are paid in any given year throughout the policy's term cannot exceed 20% of the sum insured.
• For plans bought on or after April 1, 2012, the premium amount cannot exceed 10% of the sum assured.
• Any year in the policy's lifetime, the premium for life insurance must not exceed 15% of the cash value. It should also be purchased on or after April 1, 2013. The life insurance policy coverage must also include anyone who satisfies the following requirements:
• Individuals who are disabled or have a developmental disability as defined by Section 80U of the IT Act.
• Individuals suffering from ailments as mentioned under Section 80DDB.

• An insurance policy offers you a cash payment to cover medical and personal expenditures, providing you and your relatives with financial security. It is very useful for handling unforeseen events. Thanks to the financial corpus, you can concentrate on your immediate needs, and your insurer will handle the rest. However, insurance policies do more than only provide death protection; they also qualify for tax advantages under Section 10(10D) and section 80C of the IT Act of 1961.
• Deductions for the premiums payable in a given year are allowed for exemption under Section 80C up to a maximum of ₹1.5 lakh.
• All types of accumulated rewards against the demands, such as death and maturity benefits, are eligible for tax deductions under Section 10(10D) of income tax act.

Tax benefit under Section 10(10D) are available for claims, such as death and maturity benefits, including all types of earned bonuses against the corresponding insurance policies. Any sort of claim made under life insurance is eligible for a tax exemption under this clause as well without any maximum limit.