Proceeds received from a life insurance policy on maturity, surrender, or death of the insured are exempt from tax under Section 10(10D), subject to conditions. The death claim is always fully exempt. Maturity proceeds are exempt provided the annual premium does not exceed a specified percentage of the sum assured.
Conditions for Exemption
- Death claim: Always fully exempt — no conditions
- Policies issued on or after 1 April 2003: Annual premium must not exceed 20% of Sum Assured
- Policies issued on or after 1 April 2012: Annual premium must not exceed 10% of Sum Assured
- Policies for persons with disability (80U) or specified disease (80DDB): Premium up to 15% of Sum Assured
Post-Budget 2023 Change (High-Value Policies)
- For policies issued on or after 1 April 2023: If total annual premium across all non-ULIP policies exceeds ₹5 lakh, maturity proceeds are taxable
- Such proceeds are now taxed as "Income from Other Sources" at slab rates
- This change does NOT affect ULIP policies (separate rules apply)
- Death claim remains fully exempt regardless of premium amount
ULIP (Unit Linked Insurance Plans)
- For ULIPs issued on or after 1 Feb 2021: If annual premium exceeds ₹2.5 lakh, proceeds are taxable like equity mutual funds
- ULIP proceeds taxed at 10% LTCG if held over 12 months (equity-linked)
- ULIPs with premium ≤ ₹2.5 lakh per year remain under Section 10(10D) — fully exempt
This guide reflects FY 2025-26 (AY 2026-27) and is for general information. Tax rules and limits change, and how they apply depends on your circumstances. It is not professional tax advice; consult a qualified Chartered Accountant before acting.
