What is Section 10D of the Income Tax Act?

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What is Section 10D of the Income Tax Act?
  • 22nd Nov 2021 |
  • 6,337

Financial planning is essential because it not only helps you make the most use of your money through sound investment decisions but also allows you to live the life you choose. A smart financial plan also teaches and assists you in saving money on taxes, which is one of its elements.

There is no doubt that saving money on taxes is at the top of everyone’s priority list; nevertheless, it is critical to use legal means to achieve your tax-saving goals and what comes to the rescue is a tax saver plan. A tax saver plan is where legal routes towards income tax savings sections come into play. One of the most prominent income tax savings sections is section 10D of Income Tax Act.

Learn About Section 10D of Income Tax Act

Section 10D of the Income Tax Act, 1961 pertains to the taxability of claims under which accrued bonuses or death benefits are exempted from tax. An individual can claim a tax exemption on the principal amount and accumulated bonus (if any) obtained through a life insurance tax saving claim under this section.

Terms and conditions regarding section 10D

  • For insurance plans purchased after April 1, 2012, the premium shall not exceed 10% of the sum assured.
  • Between April 1, 2003, and March 31, 2012, life insurance plans should have a premium of less than 20% of the assured sum.
  • Any gains from Unit-Linked Insurance Plans (ULIPs) and Single Premium Life Insurance Policies are also included under this section (if the conditions mentioned above are met).
  • For policies purchased before April 1, 2013, the premium shall not exceed 15% of the sum insured. Individuals who fall within this category include:
    -Individuals who are disabled as defined under Section 80U of the Income Tax Act of 1961.
    -Individuals with disabilities as defined by Section 80DDB of the Income Tax Act of 1961.

TDS on Life Insurance

Any money received from an insurance provider under a life insurance policy is liable to TDS (Tax Deduction at Source) at 2% under section 194DA of the Income Tax Act, 1961, unless the amount is exempted under section 10 (10D) as insurance tax benefits. This signifies that the TDS will not be applied on policy proceeds exempted under section 10(10D). Furthermore, if the earnings are taxable under section 10(10D) and do not exceed Rs 100,000, the insurer is not required to pay TDS.

Things to Remember When Availing Tax Saving Benefits Under 10D

  • The premium paid for any year for life insurance plans purchased between April 1, 2003, and March 31, 2012, cannot surpass 20% of the sum guaranteed.
  • The premium amount for plans obtained after April 1, 2012, cannot exceed 10% of the guaranteed total sum.
  • Each payment received under a life insurance plan, like the death benefit, bonus, or maturity benefit obtained from life insurance plans, is eligible for tax exemptions as insurance tax benefits.
  • If a person has a serious disability and their policy was issued on or after April 1, 2013, the 10% limitation has been raised to 15%. Individuals who meet the following conditions are eligible:
    -Considered disabled/severely impaired as per section 80U of the Income Tax Act, 1961
    -Diagnosed with any of the diseases listed in Section 80DDB of the Income Tax Act, 1961
  • All forms of life insurance policy claims are eligible for tax deductions.

Section 10D establishes life insurance as a genuine tax saver plan, and the benefits of insurance policies have been no secret. So, to strike two birds with one stone, get tax deductions and secure your family’s future with a life insurance policy.

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