Section 10(10D)

What is section 10(10D)?

Section 10(10D) of the Income-tax Act, 1961 is the provision that makes money received under a life insurance policy, including bonuses, free of income tax, as long as the policy meets certain conditions. It covers maturity payouts, survival benefits, surrender value and death claims. Death proceeds are exempt in almost every case. Maturity and surrender proceeds are exempt only if the premium stayed within limits linked to the sum assured and, for newer policies, within an annual premium cap.

As of October 2026, the Income-tax Act, 2025 has replaced the 1961 Act from 1 April 2026. The same exemption now sits in Schedule II (item 2), read with section 11 of the new Act, which lists income that is not part of total income. The conditions carried over in substance. "Section 10(10D)" is still the label most people use.

Conditions for the exemption

Other rules:

• Death is protected. The premium ratio tests and the ₹2.5 lakh and ₹5 lakh caps do not apply to money received on the death of the life assured. A nominee receives a death claim tax-free.
• Keyman policies are excluded. Proceeds of a key man insurance policy are taxable, as business income for the company or as salary income where the policy is assigned to the employee.
• Where the exemption fails. For a non-ULIP that loses the exemption, the income (proceeds less premiums paid that were not claimed as a deduction) is taxed as income from other sources. The CBDT set out the computation in Rule 11UACA in August 2023. For a ULIP that loses the exemption, the Finance Act, 2025 made clear that it is a capital asset and the gain is taxed as capital gains, as for an equity-oriented fund. See taxation of ULIPs.
• Tax deducted at source. When the proceeds are not exempt, the insurer deducts tax on the income part. See TDS on insurance payouts.
• IFSC policies. The Finance Act, 2025 exempted proceeds of policies issued by an IFSC insurance office (in an International Financial Services Centre such as GIFT City) without the ₹2.5 lakh and ₹5 lakh premium caps, to put non-resident buyers on par with foreign markets.

Example

A customer buys a non-linked savings plan in May 2024 with an annual premium of ₹6 lakh and a sum assured of ₹75 lakh. The premium is 8% of the sum assured, so it passes the 10% test, but it is above ₹5 lakh. If the customer survives to maturity, the gain over premiums paid is taxable as income from other sources. If the customer dies during the term, the death benefit is fully exempt.

What section 10(10D) means for distribution

• High-premium savings sales changed in 2023. The ₹5 lakh cap ended tax-free maturity for large non-linked savings tickets, which had been popular with affluent buyers and in bancassurance. Advisers selling high-ticket guaranteed plans must now present post-tax returns, not pre-tax ones.
• Aggregate across insurers. The caps apply to the total premium on all qualifying policies issued after the cut-off date, across insurers. A customer who already holds a ₹4 lakh policy elsewhere may lose the exemption on a new ₹2 lakh policy. Ask about existing policies before positioning a plan as tax-free.
• Check the ratio on short-pay and single-premium plans. A product with a low sum assured relative to premium can fail the 10% test even below ₹5 lakh. The benefit illustration should show the sum assured clearly.
• Death benefit messaging stays simple. Protection remains fully tax-free for the family, which keeps term insurance and the death benefit of savings plans straightforward to explain.
• Use the new references. Customer communication from April 2026 should refer to Schedule II of the Income-tax Act, 2025, with section 10(10D) in brackets.