Are insurance payments taxable?

“Is a lump sum life insurance payment taxable” is a common question among people who buy insurance as they usually think that the proceeds of life insurance policies are completely taxfree. But I want you to know that this is subject to some exceptions and conditions. To take advantage of the tax benefit, you must know when these proceeds are tax-free and when not. Let us examine the tax treatment of payouts under a life insurance policy in detail. Read below to know more about “are insurance payments taxable” Make Rent Payments using Credit Card through NoBroker & Get Great Rewards! Pay Your Utility Bills via NoBroker & Get Exciting Cashback!

Income Tax Act – Section 10(10)D

As per IT Act Section 10(10D), the amount of sum assured as well as any bonus paid on surrender or maturity of the policy or on the insured’s death is totally tax-free for the receiver subject to some conditions. These proceeds from the policy will be taxable in the hands of the insured in these circumstances: According to section 10(10D), if a life insurance policy was issued after 01.04.2003 but before or on 31.03.2012 if the premium payable in any year is more than 20 percent of the actual sum assured, then the proceeds from the policy will be taxable in the hands of the insured. The actual sum assured just means the sum assured which is the minimum in all the years of the policy and doesn’t include any bonus amount that is to be received over and above the assured sum. This 'actual sum assured' shouldn’t consist of any premium that is to be returned to the policyholder. For policies issued after or on 01.04.2012, the above-mentioned limit of 20 percent has been changed to 10 percent. If the insured is suffering from a serious disease or disability as mentioned by the IT Act and rules and their policy was issued after or on 01.04.2013, then the limit of 10 percent will be increased to 15 percent for them. For this, disability needs to be one of those mentioned in section 80U (such as mental retardation and autism) and disease needs to be one of those mentioned in section 80DDB read with Rule 11DD of IT rules like blindness. If the premium payable in any year becomes more than the prescribed %age i.e. 20%, 15%, or 10% of the actual sum assured, as mentioned above, then the complete policy proceeds will get taxed in the receipt’s year. However, in the case of the insured’s death, where their nominees get the policy proceeds, the same shall be tax-free in the hands of the nominees even if the premium paid in any year crossed the set percentage of sum assured. In case a policy is a Keyman insurance policy then its proceeds aren’t tax-free according to the IT Act section 10(10D). This is all on “is life insurance payment taxable” Read more: Is TDS applicable on insurance premium? How Does Mortgage Life Insurance Work? Do you need life insurance for a mortgage? I hope this answered your query on “Is a lump sum life insurance payment taxable”