Are the proceeds from all life insurance policies tax free in India?
The taxability of any amounts received under an Insurance Policy is governed by Section 10(10D) of the Income Tax Act. The same can be summarised as under :
▶️ What is the taxability when the insurance policy proceeds are received by the nominee in the event of death of the insured?
âś… The sum assured received by the nominee (beneficiary) for any life insurance policy in an unfortunate event of death of the insured is ALWAYS TAX-FREE irrespective of the premium paid or any other factor.
▶️ What is the taxability when the life insurance policy proceeds are received by the insured person on maturity of the term?
âś… The maturity sum received by the insured is TAX-FREE if the premium for EVERY YEAR (including top up premium) during the tenure of the policy is NOT EXCEEDING 10% of the sum assured as per the policy to the insured person.
âś… In any other cases, the income (sum received less total premium paid over the years) is TAXABLE under the slab rates applicable to that individual.
âś… If the maturity proceeds of the insurance policy (exceeding Rs.1 lakh) are taxable, tax is liable to be deducted at source (TDS) by the Insurance company under section 194DA at the rate of 1% on the income portion of the policy maturity proceeds. Credit for that can be claimed while filing the tax returns.
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