The common presumption of tax payers is that amount received from life insurance policies on maturity are tax free. However, this is actually subject to certain conditions and also some exceptions.
Section 10(10)D of the Income Tax Act, 1961
As per Section 10(10D) of the Income Tax Act, 1961 the amount received from life insurance policies (including bonus) is exempt from tax, except following receipts:
a) Any sum received under sub-section (3) of section 80DD; or
b) Any sum received under a Keyman insurance policy; or
c) Any sum received in respect of policies issued
(i) On or after 1.4.2003 but on or before 31.3.2012 if the premium payable in any financial year exceeds 20% of the actual sum assured.
(ii) On or after 1.4.2012, if the premium payable in any financial year exceeds 10% of the actual sum assured .
d) Any sum received in respect of policies issued on life of *specified persons on or after 01-04-2013, if the premium payable in any year exceeds 15% of the actual sum assured.
*For this purpose, specified persons means any person who is-
(i) A person with disability or severe disability specified under section 80U; or
(ii) Suffering from disease or ailment as specified in the rule made under section 80DDB.
Following point should be noted in this regard:
1. Exemption is available only in respect of amount received from life insurance policy.
2. Exemption under section 10(10D) is unconditionally available in respect of sum received for a policy which is issued on or before March 31, 2003.
3. Amount received in case of death of the person, where his nominees receive the policy proceeds the same shall be tax free in the hands of the nominee(s) even if premium paid in any year crossed the prescribed percentage (10%, 15% or 20%) of sum assured.
Is TDS applicable to payment of life insurance policy proceed?
As per Section 194DA of the Income Tax Act,1961,any sum received by a resident Indian insurer under life insurance policy shall be subject to TDS @ 1% under following circumstances:
• If the said sum is not exempted under section 10(10D).
• If policy amount is taxable and does not exceeds Rs.1,00,000. If insurer does not provide PAN then TDS rate will be be 20% instead of 1% in cases where TDS is applicable.