Did you Know – Tax Exemption criteria on Insurance Maturity value

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Tax exemption for Insurance under Section 10(10D)

One of the major competitive edge which insurance products enjoy over other investment products, is its unique benefit of final maturity amount being exempt from Income tax.

However, not many of us know that in order to make the final maturity amount tax free, it needs to meet the condition laid down under Section 10(10D) of the Income tax act.

What is Section 10(10D)

Amount of sum assured (Plus any bonus) paid on maturity or surrender of an insurance policy is tax free subject to below conditions:

  • Policies issued after 1-Apr-2003 and on or before 31-Mar-2012, if the premium payable in any year exceeds 20% of the actual sum assured, then the policy proceeds would be taxable.
  • Policies issued after 1-Apr-2012, the limit of 20% has been changed to 10%
  • Policies issued on or after 1-Apr-2013, the limit of 15% is applicable for the individuals who meets the below criteria:
  1. Disabled or severely disabled individual as per Sec 80U of the IT Act, 1961
  2. Suffering from an ailment as mentioned under Sec 80DDB of the IT Act, 1961

In case of claims on account of the death of the insured, the claim amount is completely tax free in the hands of the nominee.

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