Life insurance is designed to financially protect beneficiaries. Besides providing a financial safety net for the family, these policies also come with tax advantages, including benefits outlined in Section 10(10D) of the Income Tax Act of 1961.

This tax tool helps individuals availing of life insurance plans to save up the taxes on the maturity and death benefits. So, for those seeking term insurance policies, endowment plans, or ULIPs, you need to get a better understanding of what is Section 10(10D), what are the eligibility criteria, and the tax benefits gained from this Section.

What is Section 10(10D) of the Income Tax Act of 1961?

Under Section 10(10D) of the Income Tax Act of 1961, the beneficiaries enjoy tax exemptions on the disbursed sum assured and any other accrued bonus that is received via their life insurance plan. Such exemptions benefit the beneficiaries significantly considering that they gain access to the complete funds without any tax deductions.

Heads Up: It takes an average person up to 5 hours to read & analyze a policy, and 10 hours or more to compare different plans and make a decision.
This is why we propose a better alternative - taking a 30-minute FREE consultation with Ditto’s certified advisors. We have a spam-free guarantee, and we’ll never push you to buy a plan. Don’t delay this - we have limited slots every day, so book a quick call here before they run out.

Imagine this -

Vineeta is a 40-year-old woman who had taken a term insurance plan of ₹3 crores while in her 30s.

Vineeta passed away due to a renal ailment that led to multi-organ failure. She is survived by a son and a daughter, their spouses and grandchildren. Upon her death, her beneficiaries received ₹3 crores as a lump sum.

(No deductions are applicable on the death benefit received by the family, owing to the tax benefits under Section 10(10D)).

Now, with Section 10(10D), the benefits extend to both death benefits and maturity benefits. However,

  • In the case of death benefits (that is the amount disbursed by the insurer in case the policyholder dies during the tenure of the plan), the total amount is completely tax-free and this is not based on any eligibility criteria.
  • In the case of maturity benefits (the amount disbursed by Endowment and ULIP companies in case the policyholder survives the policy period), there still are tax benefits but they are subject to certain eligibility criteria.

Now, since not all life insurance types have maturity perks, the benefits under Section 10(10D) differ. Let’s take a look at how this Section works for different life insurance plans -

CTA

Section 10(10D) and Term Insurance

Term insurance plans are meant to be financial protection tools to safeguard your family’s future and act as a replacement for you in the case of your unfortunate demise. Now, term plans extend just the death benefits to the policyholder’s beneficiaries.

So, say -

Amit, a 45-year-old passed away due to a cardiac event. His term insurance plan (of ₹2 crore) tenure was till he turned 65. So, upon his death, the family received ₹2 crores.

However, in case Amit would have survived the tenure of the plan (till he was 65), he wouldn’t have received a penny from his coverage amount (unless he had opted for riders like Return of Premiums, etc.)

Now, under Section 10(10D) of the Income Tax Act of 1961, you can enjoy a tax-free death benefit without concerns about meeting any eligibility criteria. And since in term plans, there are no maturity benefits included, you need not worry about this.

Section 10(10D) and ULIP and Endowment Plans

  1. What are the Benefits under Section 10(10D)?

In the case of ULIPs and Endowment plans, you have both death and maturity benefits. While this needlessly spikes your premiums, you have two major benefits to consider when availing tax perks on these plans -

  • Death benefits - As per Section 10(10D), the total sum becomes tax-free without any eligibility caps.
  • Maturity benefits - As per Section 10(10D), you can also enjoy tax benefits on this sum provided you meet certain eligibility criteria, as specified by the Income Tax Act. Here is a look at these criteria -
CTA

2. What are the Eligibility Criteria for Section 10(10D)?

a. The tax deductions are available for maturity benefits and any earned incentives/bonuses.

b. Both international (provided they meet certain criteria) and Indian life insurance plans are eligible for this tax benefit under Section 10(10D).

c. The premiums paid towards your plan cannot exceed -

  • 20% of the sum assured, if the policy has been purchased between 1st April 2003, and 31st March 2012.
  • 10% of the sum assured, if the policy has been purchased on or after 1st April 2012.
  • ₹5 lakhs, if the policy (Other than ULIP) has been purchased on or after 1st April 2023.
  • ₹2.5 lakhs, if ULIP policy was purchased on or after 1st February 2021. (Say you hold more than one ULIP plan; in that case, this benefit is applicable for the plan in which the aggregate annual premium is less than ₹2.5 lakhs for each policy year.)

d. The premium of a plan (that has been bought on or after 1st April 2013) should not exceed 15% of its sum assured. Such a plan must be bought for individuals -

  • Suffering from any ailment listed under the rules of Section 80DDB of the Income Tax Act, 1961.
  • Having disabilities or any severe disabilities specified in Section 80U of the Income Tax Act, 1961.

What are the Exclusions under Section 10(10D)?

  1. Any amount received under the Keyman Insurance Policy.
💡
Keyman Insurance policy is a life insurance plan availed by an employer for an existing or ex-employee, or an employee who is or was connected with the employer’s business.

2. Any amount received under Section 80DD(3) and Section 80DDA(3) of the Income Tax Act.

Why Talk to Ditto for Your Health Insurance?
At Ditto, we’ve assisted over 3,00,000 customers with choosing the right insurance policy. Why customers like Srinivas below love us:

✅No-Spam & No Salesmen

✅Rated 4.9/5 on Google Reviews by 5,000+ happy customers

✅Backed by Zerodha

✅100% Free Consultation

You can book a FREE consultation. Slots are running out, so make sure you book a call now!

Conclusion

The tax benefits under Section 10(10D) act as catalysts to encourage individuals to avail of life insurance policies in its various variants. As the Section offers perks both for death and maturity benefits, you will be safeguarding your family’s future in the event of your death. However, while the death benefits are free from any eligibility criteria, in the rare case that you have availed of a ULIP or endowment policy, it’s best to reach out to a professional and seek their advice about how to file for these tax benefits. Since your policy purchase year (for ULIP and Endowment) brings significant changes in your eligibility criteria.