by Income tax is an interesting subject, not only from a learning perspective but also because of how nuanced and intricate the rules and laws can be. Some sections of the Income Tax Act of 1961 provide us with some exemptions and deductions. These exemptions and deductions primarily fall under sections 80 and 10. Other sections may provide specific deductions, but the majority fall under sections 10 and 80.
On purchase of some insurance, some investments, and other investments, you are offered some deductions. One of the sections that provide these provisions is known as section 10(10D).
Section 10(10D) of the Income Tax Act contains provisions regarding the taxation of life insurance policies in India. Section 10(10D) provides an exemption on the maturity benefits or the sum assured of the insurance policy to the taxpayer. An exemption is a reduction or removal of a liability to make a compulsory payment that would otherwise be taxable.
If you are planning to invest in any life insurance product, you need to understand what is section 10(10D) and the tax implications that it may have. If you are a life insurance buyer or have invested in ULIPs, you can choose to avail exemptions under section 10(10D). This section was introduced in the Finance Act of 2003. To answer the question of what is section 10(10D), lets deep dive in it:
Objective: To assist the policyholders of life insurance policies with tax benefits. Not only does it help the individual save tax, but also helps the industry to penetrate more within the country. Insurance as an industry does not have a significant presence in India. With only 4% penetration in the market, the insurance industry has a long way to go. Tax benefits like what section 10(10D) provides can encourage it.
Conditions put forth by what is section 10(10D)?
This section applies to policies that meet the minimum sum assured requirement, which is at least 10 times the annual premium for policies issued after April 2012 and 5 times for premiums paid before 2012.
If you surrender the policy before the end of the policy term, you may not be able to claim the benefits. However, the benefit will be available if the policy is surrendered due to the policy holder’s death.
In any case, if you own a policy, which is better than April 2003, then you may not be able to claim any tax benefit.
What is section 10(10D)’s major benefit?
The main benefit is that your sum assured is tax-free. This means that the sum assured claimed by the nominee or the legal heir will not be taxed.
The idea is to help you get insured and ensure that your nominees do not have to pay taxes. To know about how you can save tax with tax planning, you can research the laws or engage a professional who can help you plan your finances better.
