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Taxability of life insurance policies not eligible for exemption u/s 10(10D)

Geetanjali Pandey , Last updated: 25 March 2023  
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WHAT IS EXEMPTION U/S 10(10D)

Sec 10(10D) provide exemption with respect to any sum received under a life insurance policy, including the sum allocated by way of bonus on such policy, where premium payable for any of the year during the tenure of the policy satisfies the following conditions:

Premium payable for any of the years during the tenure of the policy (including ULIPs) is less than 10%/15% of the actual sum assured

  • Premium payable < 10% of sum assured (other than 80U/80DDB)
  • Premium payable < 15% of sum assured (persons eligible for 80U/80DDB)

In respect of ULIP, premium payable for any of the year during the tenure of the ULIPs is less than Rs. 2,50,000 (Inserted by Finance Act, 2021) (fourth proviso to clause 10(10D)

Premium Payable for ULIPs < Rs. 2,50,000

  • Premium paid for other policies (other than ULIPs) for any of the year is less than Rs. 5,00,000 during the tenure of the policy (Inserted by Finance Act, 2023) (apply with respect to any LIP other than ULIPs issued on or after 01.04.2023) (sixth proviso to clause 10(10D)
Taxability of life insurance policies not eligible for exemption u/s 10(10D)

Premium payable for policy (other than ULIPs) < Rs. 5,00,000

  • Any sum received on the death of the policyholder including the sum allocated by way of bonus on such policy will be exempt irrespective of the premium paid.(exempt for all the policies where more than one policy taken)

Note: Where the person has taken more than one life insurance policy, then the exemption u/s 10(10D) will be available subject to :

  • In respect of ULIPs- exemption shall be available only with respect to such policies where the aggregate amount of premium payable for any of the year during the tenure of any of such policies does not exceed Rs. 2,50,000/- (fifth proviso to clause 10(10D)
  • In respect of others(other than ULIPs)- exemption shall be available only with respect to such policies where the aggregate amount of premium payable for any of the year during the tenure of any of such policies does not exceed Rs. 5,00,000/-(seventh proviso to clause 10(10D)

TAXABILITY OF LIFE INSURANCE POLICY NOT ELIGIBLE FOR EXEMPTION U/S 10(10D)

IN THE CASE OF ULIPS- It will be taxable when:

  • When the premium payable for any of the year during the tenure of the ULIPs either exceed 10% of the sum assured or the annual premium exceeds Rs. 2,50,000
  • Where more than one policy taken, then where the aggregate amount of premium payable for any of the year during the tenure of any of such policies exceed Rs. 2,50,000

TAXABILITY OF ULIPs

Where the person receives at any time any amount under a specified unit linked insurance policy including the sum allocated by way of bonus on such policy on account of withdrawal/surrender/maturity, then it shall be chargeable to tax under the head " Capital Gain" under sub section(1B) of section 45 on the profit and gain arising thereon. (Policies issued on or after 01.04.2021)

Computation of Capital Gain (Rule 8AD)

CBDT vide Notification No. 8/2022-Income tax notifies Rule 8AD Computation of capital gains for the purposes of subsection (1B) of section 45.

Where the amount is received for the first time

Consideration/Amount received for the first time under xxxxx
Specified ULIP including the sum allocated by way of bonus

Less: Aggregate of the premium paid during the term of
Specified ULIPs till the date of receipt of amount/consideration (xxxx)

Capital Gain xxxx

Where the amount is received second time or subsequently

Consideration/Amount received after the amount received
first time under Specified ULIP including the sum allocated
by way of bonus xxxxx

Less: Aggregate of the premium paid during the term of
Specified ULIPs till the date of receipt of subsequent
amount/consideration reduced by premium already
considered before during the previous year
(xxxx)

Capital Gain xxxx

Note:

  • Equity Oriented ULIPs- Short Term Capital Gain where the period of holding is 12 month or less shall be chargeable to tax @ 15% & Long term capital Gain where the period of holding is more than 12 months shall be chargeable to tax @ 10%. ( in excess of Rs. 1 lakh)
  • Debt Oriented ULIPs- Short Term Capital Gain where the period of holding is 36 month or less shall be chargeable to tax at individual slab rate. & Long term capital Gain where the period of holding is more than 36 months shall be chargeable to tax @ 20% with indexation benefit.

EXAMPLE FOR CALCULATION OF CAPITAL GAIN IN ULIPs NOT EXEMPT U/S 10(10D)

Particulars

ULIP "V"

ULIP "X"

ULIP "Y"

ULIP "Z"

Policy issued date (A)

01.04.2021

01.04.2015

01.04.2019

01.04.2021

Premium payable every year (B)

Rs. 1,00,000

Rs. 1,80,000

Rs. 2,80,000

Rs. 2,70,000

Sum assured (C)

Rs. 10,00,000

Rs. 15,00,000

Rs. 30,00,000

Rs. 28,00,000

Tenure of Policy (D)

10 years

10 years

10 years

12 years

Exemption available u/s 10(10D)

Yes

No

Yes

No

Remark

Neither exceed 10% of the sum assured nor annual premium Rs. 2,50,000

Exceed 10% of the sum assured not eligible for exemption u/s 10(10D)

Policy issued before 01.04.2021 hence limit of Rs. 2.5 lakh is not applicable here. Exemption available.

Policy issued on 01.04.2021 though the premium does not exceed 10% of the sum assured but annual premium exceeds Rs. 2.5 lakh

Computation of Capital Gain

       

Consideration received on maturity

NA

Rs. 25,00,000

NA

45,00,000

Aggregate of the premium paid during the tenure of policy (B*D)

 

Since this policy issued on or before 01.04.2021 , hence capital gain u/s 45 will not attract here. However, it can be taxable under "IOS" reducing the premium paid during the tenure of policy. (25-18)

 

32,40,000 (2,70,000*12)

Capital Gain u/s 45

   

12,60,000

       
       

Particulars

ULIP "V"

ULIP "X"

ULIP "Y"

ULIP "Z"

Policy issued date (A)

01.04.2020

01.04.2021

01.07.2021

01.04.2021

Premium payable every year (B)

Rs. 2,50,000

Rs. 1,50,000

Rs. 1,00,000

Rs. 3,00,000

Sum assured (C)

Rs. 25,00,000

Rs. 15,00,000

Rs. 10,00,000

Rs. 30,00,000

Tenure of Policy (D)

10 years

10 years

10 years

12 years

Exemption available u/s 10(10D)

Yes

Yes

Yes

No

Remark

Doesn’t exceed 10% of sum assured. Since policy issued before 01.04.2021 hence annual premium of Rs. 2.5 doesn’t apply here.

Neither Exceed 10% of the sum assured nor annual premium exceed Rs. 2.5 lakh

Neither Exceed 10% of the sum assured nor annual premium exceed Rs. 2.5 lakh

Doesn’t exceed 10% of the sum assured but annual permium exceeding Rs. 2,50,000, hence not exempt u/s 10(10D)

Computation of Capital Gain

       

Consideration received on maturity

NA

Rs. 25,00,000

(Exempt)

Rs. 20,00,000

(Exempt)

40,00,000

Aggregate of the premium paid during the tenure of policy (B*D)

 

Consideration received under ULIPs "X" and "Y" shall be exempt under clause (10D), since aggregate of annual premium payable for these two policies does not exceed Rs 2,50,000 for any previous year during the term of these two policies.

36,00,000 (3,00,000*12)

Capital Gain u/s 45

 

4,00,000

     
     

Particulars

ULIP "V"

ULIP "X"

ULIP "Y"

ULIP "Z"

Policy issued date (A)

01.04.2021

01.04.2022

01.07.2022

01.04.2022

Premium payable every year (B)

Rs. 2,00,000

Rs. 1,00,000

Rs. 1,50,000

Rs. 3,00,000

Sum assured (C)

Rs. 20,00,000

Rs. 10,00,000

Rs. 15,00,000

Rs. 30,00,000

Tenure of Policy (D)

10 years

10 years

10 years

10 years

Exemption available u/s 10(10D)

Yes

No

No

No

Remark

Doesn’t exceed 10% of sum assured nor annual premium exceed Rs. 2.5 lakh

Not exempt u/s 10(10D) as per the fifth proviso since the aggregate of the annual premium payable for these three ULIPs and ULIP "V" exceeds Rs 2,50,000 which fall under the tenure of these policies.

ULIP "X" will also not be eligible for exemption under the said clause as the aggregate of annual premium of ULIPs "X" and "V" exceeds Rs 2,50,000.

Computation of Capital Gain

       

Consideration received on maturity

Rs. 25,00,000

(Exempt)

Rs. 12,00,000

Rs. 18,00,000

Rs. 34,00,000

Aggregate of the premium paid during the tenure of policy (B*D)

 

Rs. 10,00,000

Rs. 15,00,000

Rs. 30,00,000

Capital Gain u/s 45

 

Rs. 2,00,000

Rs. 3,00,000

Rs. 4,00,000

Note: Assume ULIP "V" has not been claimed as exempt by the assesse.

Particulars

ULIP "V"

ULIP "X"

ULIP "Y"

ULIP "Z"

Policy issued date (A)

01.04.2021

01.04.2022

01.07.2022

01.04.2022

Premium payable every year (B)

Rs. 2,00,000

Rs. 1,00,000

Rs. 1,50,000

Rs. 3,00,000

Sum assured (C)

Rs. 20,00,000

Rs. 10,00,000

Rs. 15,00,000

Rs. 30,00,000

Tenure of Policy (D)

10 years

10 years

10 years

12 years

Exemption available u/s 10(10D)

Not claimed

Yes

Yes

No

Remark

Not claimed

ULIPs "X" and "Y" will be exempt under clause 10(10D). since aggregate of the annual premium payable for the ULIPs "X" and "Y" together did not exceed Rs 2,50,000 for any of the previous years during the term of any of these ULIPs "X" or "Y" and ULIP "V" was not claimed to be exempt under clause (10D)

 
   

Since the annual premium exceed Rs. 2.5 lakh.

Computation of Capital Gain

       

Consideration received on maturity

 

Rs. 12,00,000

(Exempt)

Rs. 18,00,000

(Exempt)

Rs. 38,00,000

Aggregate of the premium paid during the tenure of policy (B*D)

     

Rs. 36,00,000

Capital Gain u/s 45

     

Rs. 2,00,000

Particulars

ULIP "V"

ULIP "X"

ULIP "Y"

ULIP "Z"

Policy issued date (A)

01.04.2021

01.04.2021

01.07.2022

01.04.2022

Premium payable every year (B)

Rs. 1,00,000

Rs. 1,20,000

Rs. 1,50,000

Rs. 3,00,000

Sum assured (C)

Rs. 10,00,000

Rs. 12,00,000

Rs. 15,00,000

Rs. 30,00,000

Tenure of Policy (D)

10 years

10 years

10 years

10 years

Exemption available u/s 10(10D)

Yes

Yes

No

No

Remark

Exempt under clause (10D) since the annual premium does not exceed Rs 2,50,000

Exempt under clause (10D) since the annual premium does not exceed Rs 2,50,000

ULIPs "Y"and "Z" will be taxable under clause (10D) as per the provisions of fifth proviso to the said clause (10D) since aggregate of the annual premium payable for the ULIPs "V" and "X" was Rs 2,20,000 and if the annual premium of ULIP "Y" or "Z" is added then the aggregate of the premium will exceed Rs 2,50,000 , hence not exempt.

Computation of Capital Gain

       

Consideration received on maturity

13,00,000

Rs. 15,00,000

Rs. 18,00,000

Rs. 32,00,000

Aggregate of the premium paid during the tenure of policy (B*D)

Exempt

Exempt

Rs. 15,00,000

Rs. 30,00,000

Capital Gain u/s 45

   

Rs. 3,00,000

Rs. 2,00,000

TAXABILITY OF LIFE INSURANCE POLICY (OTHER THAN ULIPs) NOT ELIGIBLE FOR EXEMPTION U/S 10(10D)

Taxable when-

  • When the premium payable for any of the year during the tenure of the ULIPs either exceed 10% of the sum assured or the annual premium exceed Rs. 5,00,000
  • Where more than one policy taken, then where the aggregate amount of premium payable for any of the year during the tenure of any of such policies exceed Rs. 5,00,000

Taxable under head- Where the person receives at any time any amount under a life insurance policy other than ULIPs including the sum allocated by way of bonus on such policy on account of withdrawal/surrender/maturity, then it shall be chargeable to tax under the head "Income from Other Sources" under clause (xiii) in sub section (2) of section 56. (Policies issued on or after 01.04.2023)

Further, Sum received under life insurance policies shall be treated as income [sub-clause (xviid) of Section 2(24)].

Computation of Income

Note: This amendment will take effect from 1st April, 2024 and will accordingly apply to the assessment year 2024-25 and subsequent assessment years.

Consideration / amount received under the life
Insurance policy including the sum allocated by
Way of bonus on such policy xxxxx

Less: Aggregate of the premium paid during the
Term of such life insurance policy excluding the
Premium already claimed as deduction u/s 80C (xxxx)

Income from Other Sources xxxxx

EXAMPLE FOR CALCULATION OF CAPITAL GAIN OTHER THAN ULIPs NOT EXEMPT U/S 10(10D)

Particulars

ULIP "A"

ULIP "B"

ULIP "C"

ULIP "D"

Policy issued date (A)

31.01.2023

15.04.2023

21.05.2023

31.07.2023

Premium payable every year (B)

Rs. 4,00,000

Rs. 4,20,000

Rs. 6,00,000

Rs. 8,00,000

Sum assured (C)

Rs. 45,00,000

Rs. 50,00,000

Rs. 70,00,000

Rs. 75,00,000

Tenure of Policy (D)

10 years

10 years

10 years

10 years

Exemption available u/s 10(10D)

Yes

Yes

No

No

Remark

Not applicable since policy issued before 01.04.2023.

Doesn’t Exceed 10% of the sum assured nor exceed Rs. 5,00,000 hence eligible for exemption

Doesn’t exceed 10% but exceed Rs. 5 lakh

Exceed 10% of sum assured as well as Rs. 5 lakh.

Computation of Income from other sources

       

Consideration received on maturity (M)

NA

Rs. 60,00,000

(Exempt)

Rs. 72,00,000

Rs. 77,00,000

Aggregate of the premium paid during the tenure of policy (B*D)

   

Rs. 60,00,000

Rs. 80,00,000

Premium claimed as exemption u/s 80C during the tenure of the policy

 

Rs. 15,00,000

Rs. 15,00,000

Premium eligible for deduction u/s 56 (N)

 

Rs. 45,00,000

Rs. 65,00,000

Income taxable u/s 56 (M-N)

 

Rs. 27,00,000

Rs. 12,00,000

       

Particulars

ULIP "A"

ULIP "B"

ULIP "C"

ULIP "D"

Policy issued date (A)

01.04.2023

01.04.2023

21.05.2023

31.07.2023

Premium payable every year (B)

Rs. 4,00,000

Rs. 4,50,000

Rs. 55,000

Rs. 40,000

Sum assured (C)

Rs. 45,00,000

Rs. 50,00,000

Rs. 10,00,000

Rs. 9,00,000

Tenure of Policy (D)

10 years

10 years

10 years

10 years

Exemption available u/s 10(10D)

Yes

Yes (Refer the remark below)

Yes

Yes

Remark

Although the exemption is available for all these policies since the premium doesn’t exceed 10 % of sum assured nor Rs. 5,00,000. But the aggregate premium of Policy "A", "C" & "D" doesn’t exceed Rs. 5,00,000 so these policies should be claimed as exempt. If policy "B" is taken, the limit of Rs. 5,00,000 will be available for "B" & "D" only.

Computation of Income from other sources

       

Consideration received on maturity (M)

Rs. 50,00,000

(Exempt)

Rs. 53,00,000

Rs. 14,00,000

(Exempt)

Rs. 12,00,000

(Exempt)

Aggregate of the premium paid during the tenure of policy (B*D)

 

Rs. 45,00,000

   

Premium claimed as exemption u/s 80C during the tenure of the policy

 

Rs. 15,00,000

   

Premium eligible for deduction u/s 56 (N)

 

Rs. 30,00,000

   

Income taxable u/s 56 (M-N)

 

Rs. 23,00,000

   

Particulars

ULIP "A"

ULIP "B"

ULIP "C"

ULIP "D"

Policy issued date (A)

01.04.2023

01.08.2023

21.05.2024

31.07.2024

Premium payable every year (B)

Rs. 2,00,000

Rs. 2,50,000

Rs. 1,00,000

Rs. 2,50,000

Sum assured (C)

Rs. 20,00,000

Rs. 25,00,000

Rs. 10,00,000

Rs. 25,00,000

Tenure of Policy (D)

10 years

10 years

10 years

8 years

Exemption available u/s 10(10D)

Yes

Yes

No

No

Remark

Since the premium doesn’t exceed 10% of sum assured nor exceeds Rs. 5 lakh

Since the premium doesn’t exceed 10% of sum assured nor exceeds Rs. 5 lakh

Although the exemption is available for all these policies "C" & "D"since the premium doesn’t exceed 10 % of sum assured nor Rs. 5,00,000. But the aggregate premium of Policy "A", "B" "C" & "D" together exceed Rs. 5,00,000, hence as per Fifth proviso , it will not be exempt.

   

Computation of Income from other sources

       

Consideration received on maturity (M)

Rs. 25,00,000

(Exempt)

Rs. 30,00,000

(Exempt)

Rs. 15,00,000

Rs. 28,00,000

Aggregate of the premium paid during the tenure of policy (B*D)

   

Rs. 10,00,000

Rs. 20,00,000

Premium claimed as exemption u/s 80C during the tenure of the policy

   

Rs. 10,00,000

Rs. 12,00,000

Premium eligible for deduction u/s 56 (N)

   

-

Rs. 8,00,000

Income taxable u/s 56 (M-N)

   

Rs. 15,00,000

Rs. 20,00,000

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Published by

Geetanjali Pandey
(Chartered accountant)
Category Income Tax   Report

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