Income Tax on proceeds from Life Insurance policy under new tax rate

written by Income tax Expert | March 3, 2020

Investment in Life Insurance Policy is major investment by all individuals and each person has atleast one LIC policy in his name.

All the people used to claim deduction of premium paid for such LIC policy u/s 80C and later on when they used to receive it’s proceeds on maturity same used to be exempt u/s 10(10D).

Thus being a tax free investment it was very popular among people.

However now with the amendment in Income Tax act by Finance Bill, 2020 wherein new lower tax rates have been introduced for individuals and many deduction and exemptions have been removed many people are confused whether the receipt from Life Insurance policy is still exempt.

In the Budget Speech, the Finance minister has mentioned that nearly 70 exemptions and deduction won’t be available for individuals who opt for new lower tax rate, which includes a major deduction u/s 80C wherein deduction of Life insurance premium is available.

Now the question arises in the minds of people that if deduction is not available u/s 80C whether exemption u/s 10(10D) is still available or same has been withdrawn after deduction u/s 80C is not available.

So let’s first understand section:

“any sum received under a life insurance policy, including the sum allocated by way of bonus on such policy, other than—

(a)  any sum received under sub-section (3) of section 80DD or sub-section (3) of section 80DDA; or

(b)  any sum received under a Keyman insurance policy; or

(c)  any sum received under an insurance policy issued on or after the 1st day of April, 2003 but on or before the 31st day of March, 2012 in respect of which the premium payable for any of the years during the term of the policy exceeds twenty per cent of the actual capital sum assured; or

(d)  any sum received under an insurance policy issued on or after the 1st day of April, 2012 in respect of which the premium payable for any of the years during the term of the policy exceeds ten per cent of the actual capital sum assured:

Provided that the provisions of sub-clauses (c) and (d) shall not apply to any sum received on the death of a person:”

Thus, the above section makes it clear that exemption u/s 10(10D) has nothing to do with whether deduction u/s 80C is allowed or not and the 70 exemptions and deduction which were announced to be removed in new tax rates doesn’t include section 10(10D).

Thus any individual who wish to go under the new tax regime and receives any maturity proceeds from life insurance policy can still show it under exempt income and won’t be required to pay any tax on same if the conditions mentioned u/s 10(10D) are met.

 

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