Section 10(10D) Income Tax Exemption on Life Insurance Policy Proceeds
Section 10(10D) of the Income-tax Act, 1961 generally exempts qualifying amounts received under a life insurance policy, including bonuses. However, the exemption depends on the policy's issue date, annual premium, sum assured, policy type and whether the payment arises on death or maturity.
What does Section 10(10D) provide?
Under the Income-tax Act, 1961, the provision excludes eligible receipts under life insurance policies, including allocated bonuses, from total income. It covers qualifying maturity, survival and death benefits, but contains exclusions for specified policies and premium thresholds. The exemption is not restricted to policyholders who are individuals in every case; entitlement depends on the nature of the policy and receipt.
Who is eligible and how much is exempt?
| Issue or receipt category | Key exemption condition |
|---|---|
| Policies issued before 1 April 2003 | Generally eligible under Section 10(10D), subject to exclusions such as keyman insurance and specified disability-related policy payments. |
| Policies issued from 1 April 2003 to 31 March 2012 | Premium payable in any year generally must not exceed 20% of the actual capital sum assured for maturity exemption. |
| Policies issued on or after 1 April 2012 | Premium payable in any year generally must not exceed 10% of the actual capital sum assured. |
| Specified disability or disease policies issued on or after 1 April 2013 | The premium-to-sum-assured threshold may be 15% where the insured satisfies the applicable disability or specified disease requirements. |
| ULIPs issued on or after 1 February 2021 | Additional annual premium limit of Rs. 2,50,000 applies, including aggregation rules where relevant; death benefits are generally protected from this premium-cap exclusion. |
| Non-ULIP policies issued on or after 1 April 2023 | Additional annual premium limit of Rs. 5,00,000 applies to qualifying non-ULIP policies, with aggregation rules; death benefits are generally excluded from this cap restriction. |
These limits summarize key provisions under the 1961 Act. The actual capital sum assured excludes certain premium returns and additional benefits; assess the precise policy terms and statutory definitions.
Payments that are not exempt
- Keyman insurance policies: Receipts under a keyman insurance policy, including policies assigned to another person in circumstances covered by the law, are generally outside Section 10(10D) exemption.
- Specified disability-related receipts: Payments under Section 80DD(3) or the former Section 80DDA(3) are excluded.
- Excess-premium policies: Maturity or survival benefits failing the applicable 20%, 10% or 15% premium-to-sum-assured test are generally not exempt.
- High-premium ULIPs and non-ULIPs: Receipts may be taxable when the applicable Rs. 2.5 lakh or Rs. 5 lakh premium thresholds and aggregation rules are breached, subject to the statutory exceptions.
Are death benefits taxable?
Amounts received on the death of the insured person are generally exempt despite the premium-percentage or high-premium restrictions described above. The keyman insurance exclusion and other specific statutory exceptions must still be examined. Nominees should retain the insurer's death claim settlement documents.
How are non-exempt proceeds taxed?
The tax treatment depends on the policy category. Non-exempt ULIP gains can fall under the capital gains provisions applicable to specified ULIPs. For certain non-ULIP life insurance policies whose proceeds are not exempt, the taxable amount is generally determined under the applicable income-from-other-sources rules after permitted premium adjustments. Keyman insurance receipts can be taxed according to the recipient and relevant income head. The gross payout should not automatically be treated as taxable profit without applying the governing computation rules.
Illustrative examples
Example 1: Ordinary policy meeting the 10% test
A policy issued in 2018 has an actual capital sum assured of Rs. 10,00,000 and annual premium of Rs. 80,000. The premium is 8% of the sum assured. Its qualifying maturity proceeds may be exempt, assuming the other statutory conditions are met.
Example 2: Non-ULIP policy issued after 1 April 2023
A non-ULIP life policy issued in May 2024 carries annual premium of Rs. 6,00,000. Its maturity proceeds would ordinarily not qualify for the Section 10(10D) exemption under the high-premium rule, even if the 10% sum-assured test is met. The tax treatment of a death benefit is different.
Example 3: Multiple high-premium policies
Where multiple qualifying policies are held, the law may require premiums to be aggregated to determine which receipts can be exempt. Evaluate all relevant policies together rather than applying the premium cap independently to each policy.
Documents and practical checks
- Check the policy commencement date and whether it is a ULIP or non-ULIP.
- Compare premium payable for every policy year with the actual capital sum assured.
- Check the applicable high-premium limit and aggregation across policies.
- Preserve the policy schedule, premium receipts, bonus statements and insurer settlement certificate.
- Review the tax treatment and any TDS reported by the insurer before filing the return.
Income-tax Act, 2025: applicability
The Income-tax Act, 2025 came into force on 1 April 2026 and governs income of the relevant tax years, subject to its commencement, transition and saving provisions. The Section 10(10D) reference on this page identifies the historical provision of the Income-tax Act, 1961. For a receipt in tax year 2026-27 or later, verify the corresponding exemption, exclusions and transitional rules in the 2025 Act rather than assuming the old section numbering continues unchanged.
Official legislation and filing resources
- Income Tax Department: Income-tax Act and statutory provisions
- India Code: Central Acts including the Income-tax Act, 2025
- Income Tax e-Filing Portal
- e-Gazette of India: statutory notifications and amendments
Frequently asked questions
Is every life insurance maturity payment tax-free?
No. The policy must satisfy the applicable premium, sum-assured, date-of-issue and policy-type conditions.
Is the bonus on a life insurance policy also exempt?
Yes, bonuses are generally included in the exemption when the underlying policy proceeds qualify under the applicable provision.
Does the Rs. 5 lakh premium limit apply to older policies?
The additional non-ULIP high-premium rule is directed at policies issued on or after 1 April 2023, not all existing life insurance policies.
Is the Rs. 2.5 lakh ULIP cap the same as the Rs. 5 lakh non-ULIP cap?
No. They apply to different classes of policies and have distinct commencement dates and aggregation provisions.
Updated 10 October 2026. General educational information; apply the law for the relevant year and individual policy facts.