Guide to tax exemptions under section 10 10D

A simple term plan can go a long way to ascertain that your family is financially secure even in your absence. An affordable term plan can mitigate risks and take care of financial complexities when you most need them. Even the cheapest term insurance plan offers a large cover to cope with financially draining situations.

Several insurance companies offer a low-cost term insurance plan that is especially beneficial to individuals with a low-to-moderate income who require a large sum to secure their families. However, it is important to note that while money is an important factor in choosing life insurance, a cheap term plan should not be the only criteria. Also, you can use a term insurance premium calculator to determine the approximate premium outflow for your choice of policy.

How To Save Income Tax?

Several affordable life insurance plans offer a wide range of benefits to meet your financial requirements. A term plan can help you save on taxes under Section 80(C) and Section 10(10D) of the Indian Income Tax Act, 1961.

Section 10 (10D) of the Indian Income Tax Act provides an opportunity for tax-payers to reduce their taxable income. Let us unravel this section in detail.

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

There are several benefits of purchasing a life cover as it fortifies your family financially by offering a lump sum amount to meet the rising expenses in your absence. The financial corpus that comes with life insurance is especially useful in meeting unexpected emergencies. Several insurance companies offer an affordable life insurance plan that provides policyholders with a host of benefits.

When you buy life insurance, not only do you ensure future financial stability, but you can also avail of tax benefits under Section 80(C) and Section 10(10D) of the Income Tax Act. Section 80(C) offers deductions of up to ₹1.5 lakhs on life insurance premiums paid during a financial year.

Under Section 10(10D), the amount of sum assured and any bonus or policy proceeds that are paid on the maturity or the surrender of the policy or on the death of the insured individual are entirely tax-free for the beneficiary.

However, the tax benefits under Section 10(10D) of the Indian Income Tax Act 1961 can only be availed under the following terms and conditions:

  • The tax deductions are applicable on every sum received under a life insurance plan, such as death benefit, maturity benefit, or the bonus received from life insurance policies
  • For the life insurance policies bought between 1st April 2003 and 31st March 2012, the premium paid for any year cannot exceed more than 20% of the sum assured 
  • For policies purchased after 1st April 2012, the premium cannot exceed more than 10% of the sum assured
  • If an individual suffers from a severe disability or disease, and their policy was issued on or after 1st April 2013, then the 10% limit for them has been exceeded to 15%. This applies to individuals under the following criteria:
    • Disabled or severely disabled, as specified under Section 80U of the Income Tax Act, 1961     
    • Suffering from any disease as specified under Section 80DDB of the Income Tax Act, 1961
  • If the maturity benefit on your life insurance policy does not qualify for an exemption under Section 10(10D), the sum assured would be subject to tax deducted at source (TDS), as per the following:
    • If a PAN card is submitted, then 10% TDS will be applied to the maturity benefit
    • Without the PAN card, 20% TDS would be applied on the maturity benefit

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

It is important to be mindful of the exceptions to Section 10(10D) of the Income Tax Act, 1961. These include:

  • Any amount received under a Keyman insurance policy, meaning life insurance policy taken by an employer:
    • On the life of a current or former employee
    • On the life of an employee who is or was connected with the business
  • Amount received under sub-section (3) of Section 80DD or sub-section (3) of 80DDA of the Income Tax Act
  • For the life insurance policies bought between 1st April 2003 and 31st March 2012, if the premium paid for any year exceeds more than 20% of the sum assured 
  • For policies purchased after 1st April 2012, if the premium exceeds more than 10% of the sum assured
    • Considering that the provisions of sub-clauses (c) and (d) shall not apply to any sum received on the death of a person and
    • To calculate the actual capital sum assured under sub-clause (c)

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

Some of the most important eligibility criteria for deductions under Section 10(10D) are:

  • Tax deductions can be availed on life insurance policy claims such as death or maturity benefit and accrued bonuses, if any.
  • There is no upper limit on the claim for life insurance policies
  • The tax deductions are available for insurance purchased from Indian as well as foreign life insurance companies

Tax Benefits with Edelweiss Tokio Term Plan

Edelweiss Tokio offers Edelweiss Tokio Life – Saral Jeevan Bima, a low-cost term insurance plan that offers numerous benefits, including applicable tax benefits. You can get tax deductions of the premium paid for the policy under Section 80(C) of the Income Tax Act, 1961. Additionally, the death benefit payable under the plan is exempt from taxation under Section 10 (10D) of the Act.

You can calculate the premium required for Edelweiss insurance using the free term plan calculator available on the website. Edelweiss term insurance – Saral Jeevan Bima combines contemporary financial needs such as COVID-19 death claims, seamless term cover and low premiums, making it an affordable term insurance cover for all. 

Summing Up

While affordability is an important factor in looking for suitable insurance, providing financial protection for your family is the foundation of every term plan. Additionally, be aware of the term plan tax benefits that you can avail of from your plan.

Be mindful of future requirements and incorporate components such as inflation and changing financial needs before you buy term insurance. 

Swati Tumar – Travel & Finance Writer
Swati is a Writer in the day and an illustrator at night. Among her interests, she is quite fond of art and all things creative. She often indulges herself in creating doodles, illustrations, and other forms of content. She identifies herself as an avid traveler and shameless foodie.  

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