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Section 10 (10D) of the Income Tax Act: Eligibility Criteria, Benefits, and Exemptions

A life insurance policy serves as a financial protection for you and your family by offering you a lump sum to meet personal and medical expenses. It is especially beneficial for meeting unexpected emergencies. The financial corpus enables you to focus on your needs at hand, while your insurer takes care of the financial requirements.

However, life insurance policies not only offer life coverage, you can avail further benefits through tax deductions under Section 80C and Section 10(10D) of the Income Tax Act, 1961. Section 80C offers deductions of up to Rs.1.5 lakh on life insurance premiums paid in a particular year.

Section 10(10D) specializes in offering tax deductions on claims, i.e. death and maturity benefit, which includes all forms of accrued bonuses against the respective life insurance policies. Tax deductions under this section can be availed on all types of life insurance policy claims. There is no upper limit on the claim.

Terms of Section 10(10D) of the Income Tax Act, 1961

Tax benefits under Section 10(10D) of the Income Tax Act, 1961 can be claimed only on the following terms and conditions:

Tax deductions under Section 10(10D) of the Income Tax Act, 1961, is applicable on any sum received under a life insurance plan i.e. Death Benefit or maturity Benefit or Bonus received from life insurance policies
Payout that is not eligible for tax deductions under Keyman Insurance Policy are eligible for deductions under this section
Premium paid during any particular year during the policy term cannot be more than 20% of the sum assured for life insurance policies bought between 1st April 2003 and 31st March, 2012
For policies purchased after 1st April 2012, the premium payment cannot be more than 10% of the sum assured
The insurance premium for any year during the policy tenure should not exceed 15% of the sum assured. Besides, it also should not have been purchased on or after 1st April 2013. Also, the insurance policy must be for the life of any individual who meets the following criteria:
- Disabled or severely disability individual, as specified under Section 80U of the Income Tax Act, 1961
- Suffering from a disease as specified under Section 80DDB of the Income Tax Act, 1961

Points to Note about Section 10(10D) of the Income Tax Act, 1961

Below are the salient points for you to understand how tax deductions under Section 10(10D) of the Income Tax Act, 1961 are computed:

If the Maturity Benefit that you are eligible for on your life insurance policy does not qualify for exemption under Section 10(10D) of the Income Tax Act, 1961, the amount you receive will be subjected to tax deducted at source (TDS), as per the following:
- On submission of PAN card, 2%TDS will be applicable on the full Maturity Benefit
- When PAN Card is not submitted, 20% TDS will be applicable on the full Maturity Benefit

Exceptions under Section 10(10D) of the Income Tax Act, 1961

The below are the exceptions to Section 10(10D) of the Income Tax Act, 1961:

Amount received under a Keyman Insurance Policy
Amount received under sub-section (3) of Section 80DD or sub-section (3) of 80DDA of the Income Tax Act, 1961
Any sum received under an insurance policy issued on or after the 1st day of April, 2003 but on or before the 31st day of March, 2012 in respect of which the premium payable for any of the years during the term of the policy exceeds twenty per cent of the actual capital sum assured; or
Any sum received under an insurance policy issued on or after the 1st day of April, 2012 in respect of which the premium payable for any of the years during the term of the policy exceeds ten per cent of the actual capital sum assured:

Provided that the provisions of sub-clauses (c) and (d) shall not apply to any sum received on the death of a person

Provided further that for the purpose of calculating the actual capital sum assured under sub-clause (c)

Eligibility Criteria for Section 10(10D) of the Income Tax Act, 1961

The following are the eligibility criteria for available tax deductions under Section 10(10D) of the Income Tax Act, 1961:

Tax deductions can be availed on life insurance policy claims, which are death benefit or maturity benefit, which include accrued bonuses
Tax deductions can be availed on all types of life insurance policy claims
There is no upper limit applicable on the claim against life insurance policies
Tax deductions under Section 10(10D) of the Income Tax Act, 1961 are applicable on Indian as well as foreign life insurance companies
The payout under Keyman Insurance Policy are not eligible for tax deductions
Premium payment made in a certain year during the policy tenure cannot be more than 20% of the sum assured for life insurance policies bought between 1st April 2003 and 31st March, 2012
The premium payment cannot be more than 10% of the sum assured for policies purchased on or after 1st April 2012
The premium of a life insurance policy for any year during the policy tenure should not be more than 15% of the sum assured. It also should have been bought on or after 1st April 2013. Also, the life insurance policy must be for the life of any individual who meets these criteria:
- Disabled or severely disability individual, as per Section 80U of the Income Tax Act, 1961
- Suffering from an ailment as mentioned under Section 80DDB of the Income Tax Act, 1961

Deduction Limit under Section 10(10D) of the Income Tax Act, 1961

Tax deductions are applicable on claims against life insurance policies across categories. The claim payout includes accrued bonuses. There is no upper limit applicable for tax deductions under Section 10(10D) of the Income Tax Act, 1961.