Deduction Under Section 10 (10D)

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Life insurance is financial security for you and your family. A life cover is offered which is paid as death benefit or maturity benefit is paid on maturity if the life assured survives the policy term. 

The financial corpus helps you focus on the needs at hand while your insurer takes care of the financial requirements. 

However, life insurance plans provide life insurance coverage, and you can make use of additional benefits through tax deductions in Section 80C and Section 10(10D) of the Income Tax Act, 1961. 

What are the terms of Section 10 (10D)?

Tax benefits in Section 10(10D) of the Income Tax Act, 1961 can be asserted only with the following terms:

  • Tax deductions in Section 10(10D) of the Income Tax Act, 1961 shall refer to any amount earned under a life insurance scheme, i.e., Death or maturity gain or bonus earned from life insurance policies.
  • The payment that is not available for tax deductions under the Keyman Insurance Policy is eligible for deductions under this clause.
  • The premium charged in any given year during the policy term cannot be more than 20% of the value of the life insurance insurance policy obtained between 1 April 2003 and 31 March 2012.
  • In the case of policies obtained after 1 April 2012, the premium charge cannot exceed 10% of the amount guaranteed.
  • The insurance premium for each year over the course of the coverage period does not exceed 15% of the sum of the insurance premium. 
  • Also, the insurance policy should be for the life of any person who meets the following criteria:
  1. Restricted or seriously disabled individuals as defined in Section 80U of the Income Tax Act, 1961.
  2. A disease as defined in Section 80DDB of the Income Tax Act, 1961

Key points to note about Section 10 (10D)

Here are the main points for you to understand how the tax deductions in Section 10(10D) in the Income Tax Act, 1961 are calculated:

  • If the maturity advantage you are entitled to on your life insurance policy is not eligible for deduction in Section 10(10D) of the Income Tax Act, 1961, the amount you receive will be subject to a TDS as follows:
  1. Upon submission of the PAN card, 2% TDS will apply to the full maturity benefit.
  2. If the PAN Card is not submitted, 20% TDS will apply to the full Maturity Benefit.

What are the deductions under Section 10 (10D)?

The following can be inferred by summarising the provisions of Section 10(10D)–

  1. Any amount earned under a life insurance policy can be exempted under section 10(10D). This number covers death insurance, maturity benefits, and accumulated bonuses.
  2. The section extends to all types of life insurance policy claims.
  3. There are some special situations where the exemption is not available in compliance with Section 10(10D). 

Are there any exceptions under Section 10 (10D)?

The following are the exceptions to Section 10(10D) of the Income Tax Act, 1961:

  1. Amounts earned under the Keyman Insurance Policy
  2. Sum earned under subsection (3) of Section 80DD or subsection (3) of the Income Tax Act, 1961.
  3. Any amount earned under an insurance policy released on or after the first day of April 2003, but not after 31st day of March 2012.
  4. Any amount collected under an insurance policy issued on or after 1 April 2012, for which the premium to be paid for any of the years within the term of the policy exceeds 10% of the actual capital amount of the insurance policy:

What are the eligibility criteria of Section 10 (10D)?

The following are the eligibility requirements for the tax deductions available under Section 10(10D) of the Income Tax Act, 1961:

  1. Tax deductions in Section 10(10D) of the Income Tax Act, 1961 apply to both Indian and international life insurance firms.
  2. Restricted or seriously disabled persons, as described in Section 80U of the Income Tax Act, 1961.
  3. Suffering from a disease

Deductions limit under Section 10 (10D)

There is no upper limit for tax deductions under Section 10(10D) of the Income Tax Act, 1961.

Conclusion 

Tax deductions in Section 10(10D) of the Income Tax Act, 1961 include any amount earned under a life insurance scheme, i.e., death or maturity gain or bonus earned from life insurance policies. 

Although there is no upper limit for deductions, there are some cases where deductions are not applicable. Hence, with tax deductions on the Life Insurance policies, you get cover for life and get monetary benefits! Could it get any better!

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