Sec.10 (10D) Tax Benefit not available to PaidUp policy ? ZPaid

The insurer’s position is not legally sustainable in general.
If, at the time of issue in 2016, the ULIP satisfied the ≤10% premium vs. sum assured condition, then Section 10(10D) exemption continues even if the policy is later made paid-up with a proportionately reduced sum assured, provided such reduction is as per policy terms.
Accordingly, Section 194DA TDS should NOT be deducted on maturity or surrender proceeds.

Action Plan

1. Obtain original policy document and paid-up endorsement from insurer.

2. Check and highlight original sum assured and premium clause.

3. Submit a written objection to insurer citing Section 10(10D) + CBDT Circulars.

4. If TDS already deducted, claim refund in ITR under “Exempt income – 10(10D)”.

5. If insurer persists, escalate to IRDAI grievance cell