Is LIC Maturity Amount Taxable?

If you are wondering whether the LIC maturity amount is taxable or not, the answer depends on the specific conditions applicable to your policy.

The tax framework for life insurance has also changed with the introduction of the Income Tax Act, 2025, which came into effect on April 1, 2026. The new Act reorganizes the corresponding provisions.

In this guide, we explain when LIC maturity proceeds are tax-free, when they become taxable, and what you need to know about the tax on the LIC maturity amount.

Section 10(10D): The Rule Behind LIC Maturity Amount Tax

Section 10(10D) of the Income Tax Act, 1961 was the key provision governing the tax exemption on life insurance proceeds. It provided that amounts received under a life insurance policy, including bonuses, could be exempt from income tax, subject to certain conditions.

From April 1, 2026, the Income Tax Act, 2025 replaced the 1961 Act. The corresponding life insurance exemption is now covered under Schedule II, Sl. No. 2, read with Section 11. While the provision has been renumbered, the core conditions for claiming the exemption have largely remained the same.

For LIC policyholders, three factors are particularly important when determining whether the maturity proceeds qualify for the exemption:

• Policy Issue Date: The permitted premium-to-sum-assured ratio varies depending on when the policy was issued.
• Premium-to-Sum-Assured Ratio: The annual premium must stay within the prescribed percentage of the actual capital sum assured.
• Aggregate Premium Limits: Additional limits apply to certain newer policies. For specified ULIPs, the aggregate premium limit across all ULIPs held is ₹2.5 lakh. For specified non-ULIP policies issued on or after April 1, 2023, the corresponding limit is ₹5 lakh.

The rules for death benefits are different. The premium ratio and aggregate-premium conditions do not apply to amounts received on the death of the insured, subject to specific exclusions such as keyman insurance.

When Is LIC Maturity Amount Fully Tax-Free?

If you are trying to understand whether the maturity amount of the LIC policy is taxable or not, the key scenarios to watch out for are:

A special policy refers to a policy issued on the life of a person with a disability or a person suffering from a specified disease or ailment. For example, Meera bought an LIC endowment plan in 2016 with a sum assured of ₹10 lakh and an annual premium of ₹90,000. Her premium-to-sum-assured ratio is 9%, which is within the applicable 10% limit. Assuming the other conditions are met, her maturity proceeds qualify for the exemption. 

For older LIC policies, check the policy bond for the issue date, annual premium, and sum assured, as these determine which exemption conditions apply.

When Does LIC Maturity Amount Become Taxable?

Your LIC maturity proceeds may become taxable if the policy does not meet the exemption conditions. The key situations to watch are:

1) The Premium-to-Sum-Assured Ratio Is Exceeded: For policies issued on or after April 1, 2012, the annual premium cannot exceed 10% of the sum assured. A 15% limit applies to specified special policies.

2) The ₹5 Lakh Aggregate Premium Limit Is Exceeded: For non-ULIP policies issued on or after April 1, 2023, the exemption does not apply if the aggregate premium exceeds ₹5 lakh in a financial year. The limit applies across eligible policies rather than to each policy individually.

3) The ₹2.5 Lakh ULIP Limit Is Exceeded: For ULIPs issued on or after February 1, 2021, the aggregate premium must remain within ₹2.5 lakh to qualify for the exemption. If the applicable conditions are not met, the resulting gains are subject to the relevant capital gains tax provisions.

4) It Is a Keyman Insurance Policy: Proceeds from Keyman Insurance policies do not qualify for the life insurance exemption.

5) It Is an Annuity or Pension Payout: Regular annuity or pension payments have separate tax treatment and are not covered by the maturity exemption.

How Is the Taxable Amount Calculated?

For a non-ULIP life insurance policy, the amount taxable under “Income from Other Sources” is the amount received minus the eligible premiums paid up to that date, provided those premiums have not already been claimed as a deduction under another provision of the Income Tax Act. If the policy pays benefits over multiple years, you cannot deduct premiums already used to reduce an earlier taxable payout.

For example, if you receive ₹8 lakh and ₹5.5 lakh of premiums qualify for reduction because you haven't previously claimed any of those premiums as a tax deduction, ₹2.5 lakh would be taxable. If you already claimed any part of the ₹5.5 lakh as a deduction, the taxable amount would be higher.

TDS on Taxable LIC Maturity Proceeds

If the maturity proceeds are taxable, the insurer may deduct TDS at 2% on the income component, subject to the applicable ₹1 lakh threshold. Under the new tax framework, the corresponding provision is covered under Section 393(1), Table Sl. No. 8(i).

For the Tax Year 2026-27 onward, eligible taxpayers can submit Form 121 if they meet the prescribed conditions and have no tax liability. Form 15G/15H applies to the earlier Income Tax Act, 1961 framework and is not the applicable declaration under the new tax regime.

LIC Maturity Amount vs. Death Benefit: How the Tax Treatment Differs

Note: For a death claim, the premium-to-sum-assured ratio and aggregate premium limits do not determine the exemption. Therefore, a nominee can receive the death benefit tax-free even when the policy would not have qualified for the maturity exemption.

How to Report LIC Maturity Amount in Your Income Tax Return?

The way you report an LIC maturity amount depends on whether the proceeds qualify for the applicable tax exemption.

If the Amount Is Exempt

For FY 2025–26 (AY 2026–27), the Income Tax Act, 1961, governs your return. Report the exempt LIC maturity amount in Schedule EI (Exempt Income) of your Income Tax Return (ITR), wherever applicable. 

From the tax year beginning April 1, 2026, the Income Tax Act, 2025 applies, so follow the reporting requirements in the applicable ITR form notified under the new Act.

If the Amount Is Taxable:

1) Determine the taxable portion according to the applicable rules.

2) Report the amount under the appropriate head of income. Report taxable non-ULIP life insurance proceeds under Income from Other Sources, while non-exempt ULIPs are subject to the applicable capital gains provisions.

3) Check the TDS reflected in your tax statement and claim the eligible credit.

4) Pay any additional tax due before filing your return.

Note: Do not assume that an LIC payout is tax-free simply because the amount is small. Check the policy's issue date, premium details, and applicable exemption conditions before reporting it in your ITR.

Why Choose Ditto for Life Insurance?

At Ditto, we’ve assisted over 12,00,000 customers with choosing the right insurance policy. Why customers like Aaron below love us:

• 100% Free Consultation
• No Spam. No Sales Pressure.
• Rated 4.9/5 on Google Reviews by 30,000+ Happy Customers
• Backed by Zerodha
• Dedicated Claim Support Team
• Compare Plans and Premiums with a Trusted Insurance Advisor

Confused about the right insurance? Speak to Ditto’s certified advisors for free, unbiased guidance. Book your call now or chat with us on WhatsApp. Slots fill up fast!

Conclusion

LIC maturity proceeds are not automatically tax-free. Their tax treatment depends on factors such as the policy's issue date, premium-to-sum-assured ratio, and applicable aggregate premium limits.

For newer policies, the ₹5 lakh aggregate premium limit for eligible non-ULIPs and the ₹2.5 lakh limit for specified ULIPs can determine whether the maturity proceeds qualify for exemption. The Income Tax Act, 2025 has also changed the statutory reference for the life insurance exemption, although the core framework has largely been retained.

Before filing your return, check your policy bond, premium payments, issue date, and applicable exemption conditions to determine how your LIC maturity amount should be treated for tax purposes.

Note: Ditto is not a tax expert or tax advisor, and this article is intended for informational purposes only. It should not be considered as financial or tax advice. We recommend consulting a qualified tax professional to understand how the applicable tax laws apply to your specific situation and how to report the proceeds correctly.