Who doesn’t like having fewer taxes to pay every year? Insurance policies give benefits under certain tax provision to encourage investing in term plans. But it is not advised to view insurance policies just as tax-savings instruments as policies provide security to your loved ones in case something unfortunate happens to you. So, before going ahead to buy a plan suitable for you, here is the tax benefit under Section 10(10D) and the terms and conditions that you should know.
What Is Section 10(10D)?
Section 10(10D) of the Income Tax Act, 1961 enables policyholders to get tax exemption on the death and maturity benefit received from a life insurance policy. This tax provision allows you to avail the lump sum amount as tax-free by claiming it under Section 10(10D) for an income tax deduction. In turn, you are also able to secure the future of your family and fulfil long-term wealth creation goals by buying plans like money-back policy and whole life plan amongst others.
Terms & Conditions of Section 10(10D) of Income Tax Act, 1961
Here are some of the terms and conditions of Section 10(10D) that you need to know about:
- If the death benefit is received under the Keyman Insurance Policy, the sum assured cannot be claimed as tax-free
- If the death benefit is received under Section 80DD (3), then sum assured will be taxable
- For a policy bought after or on 1 April 2003 and before or on 31 March 2012, the premium should not be more than 20% of the sum assured
- For a policy bought after or on 1 April 2012, the premium should not be more than 10% of the sum assured
- For a policy bought after or on 1 April 2013, the premium should not be more than 15% of the sum assured for the below-given conditions:
- Severely disabled individual as mentioned under Section 80U of the Income Tax Act, 1961
- Suffering from disease as mentioned under Section 80DDB of the Income Tax Act, 1961
Points to Note About Tax Applicability on Sum Assured
Under Section 194DA of the Income Tax Act, 1961, the sum assured given to the Indian Resident policyholder not claimed under Section 10(10D) shall be subject to TDS (Tax Deducted at Source) of 2%. The death benefit or maturity amount exempted under Section 10(10D) will not attract any taxes. And if the sum assured is not claimed under the tax provision but does not exceed INR 1,00,000, then no TDS will be levied. But you need to submit your PAN to the insurer, or else the TDS levied will be 20% instead of 2%.
Now, that you are aware of the terms and conditions for claiming the term insurance sum assured and the TDS applicable on it, you can be cautious and save on taxes.
