Section 10(10D) deals with the tax exemption on amounts received under a life insurance policy, including any bonus. This means the maturity proceeds or death benefits from a life insurance policy are exempt from income tax — but with important conditions.
Core Provision
Any sum received under a life insurance policy (including bonuses) is fully exempt from tax, subject to certain conditions related to the premium paid versus the sum assured.
Key Conditions for Exemption
For policies issued on or after April 1, 2012: The annual premium must not exceed 10% of the actual capital sum assured. If it does, the maturity proceeds become taxable.
For policies issued between April 1, 2003 and March 31, 2012: The annual premium must not exceed 20% of the sum assured.
For policies for disabled persons (u/s 80U) or critical illness: The premium limit is relaxed to 15% of the sum assured (for policies issued on/after April 1, 2013).
What is ALWAYS Exempt (No Conditions Apply)
- Death benefits — Any amount received by the nominee/legal heir on the death of the insured is always fully exempt, regardless of the premium-to-sum-assured ratio.
Budget 2023 Amendment (Effective April 1, 2023)
For non-ULIP (Unit Linked Insurance Plan) policies issued on or after April 1, 2023, if the aggregate annual premium exceeds ₹5 lakh, the maturity proceeds become taxable as income from other sources (death benefit still remains exempt).
Illustrative Examples
Example 1 — Fully Exempt (Normal Policy)
Ramesh buys a policy in 2015 with a sum assured of ₹10 lakh. He pays an annual premium of ₹80,000 (8% of sum assured). On maturity, he receives ₹15 lakh. Since the premium is within 10%, the entire ₹15 lakh is tax-free.
Example 2 — Taxable Maturity (High Premium)
Priya buys a policy in 2018 with a sum assured of ₹5 lakh. She pays an annual premium of ₹60,000 (12% of sum assured — exceeds 10%). On maturity, she receives ₹9 lakh. Since the premium exceeds 10%, the entire ₹9 lakh is taxable under “Income from Other Sources.”
Example 3 — Death Benefit (Always Exempt)
Suresh holds a policy with high premiums (15% of sum assured). He passes away, and his nominee receives ₹20 lakh. Despite the premium ratio being high, the death benefit of ₹20 lakh is fully exempt under Section 10(10D).
Example 4 — Post-2023 High-Value Policy
Anita buys a non-ULIP policy in August 2023 with an annual premium of ₹6 lakh. On maturity, she receives ₹40 lakh. Since the premium exceeds ₹5 lakh (new 2023 rule), the maturity proceeds are taxable (only death claim would remain exempt).
Example 5 — ULIP Policy
ULIPs have a separate taxation rule: if the annual ULIP premium exceeds ₹2.5 lakh (for policies issued after Feb 1, 2021), gains are treated as capital gains and taxed accordingly — they do not qualify for the 10(10D) blanket exemption.
Quick Summary Table
| Situation | Exempt? |
| Death benefit (any policy) | ✅ Always exempt |
| Maturity — premium ≤ 10% of sum assured | ✅ Exempt |
| Maturity — premium > 10% of sum assured | ❌ Fully taxable |
| Non-ULIP policy (post Apr 2023) — premium > ₹5L/year | ❌ Taxable |
| ULIP — premium > ₹2.5L/year (post Feb 2021) | ❌ Taxed as capital gains |
Note: Always consult a qualified tax advisor for personalised guidance, as the applicability depends on the specific policy terms and dates.
