Section 10(10D)

Section 10(10D) of the Income-tax Act exempts from tax the proceeds received under a life insurance policy — whether as maturity benefit, survival benefit, or death benefit — subject to a set of conditions that have tightened materially over the last decade. For a death benefit paid to a nominee, the exemption is effectively unconditional: the entire amount received on the death of the life assured is tax-free in the nominee's hands, which is one of the reasons pure-protection term plans are a widely used wealth-transfer instrument in India. For maturity and survival benefits, the exemption is conditional.

First, for policies issued on or after 1 April 2012 (and before the 2023 amendment), the annual premium must not exceed 10% of the sum assured (for persons with disabilities defined under Section 80U or severe illnesses under 80DDB, the threshold is 15%); if the premium-to-sum-assured ratio breaches this cap, the maturity proceeds are fully taxable. Second, from 1 April 2023 the Finance Act 2023 added a further limit: for non-ULIP policies issued on or after that date, the aggregate annual premium across all such policies held by the taxpayer must not exceed ₹5,00,000. If the aggregate exceeds ₹5 lakh, the maturity from the excess policies is taxable as 'Income from Other Sources'.

Third, for ULIPs, a similar ₹2,50,000 aggregate-premium threshold had been introduced from 1 February 2021 — ULIPs with aggregate premium above ₹2. 5 lakh issued on or after that date lose the 10(10D) exemption, and the gains are taxed as capital gains. Worked example: Arjun bought a traditional endowment on 15 May 2023 with a ₹2,50,000 annual premium and a ₹30 lakh sum assured.

The premium is within the 10% sum-assured cap. But he already has another endowment bought in June 2023 with a ₹3,00,000 annual premium — his aggregate is ₹5,50,000, breaching the ₹5 lakh threshold. The excess policy's maturity is taxable.

A common misconception is that Section 10(10D) exemption applies to all life insurance maturities without qualification. Both the 10%-of-sum-assured cap and the new aggregate premium thresholds are now active, and failing either disqualifies the exemption. Another common misconception is that the death benefit is taxable if the 10% cap is breached.

It is not — the death benefit exemption is preserved regardless of premium-to-sum-assured ratio. Related: Section 80C, Section 80D, tax-free maturity.