Understanding of Section 10 of the Income Tax Act, 1961:
The exemption under section 10 covers Leave travel allowance (LTA), Life Insurance, Gratuity, leave encashment, Transport allowance, Agriculture Income etc. Section 10 contains different subsections, each allowing exemptions on different income types. These exemptions can be claimed by assesses including Individuals (salaried as well as non-salaried), Hindu Undivided Families (HUFs), Associations, Trusts, Companies, Body of Persons, Foreign Companies, etc.
Tax exemption under Section 10(10D) of the Income Tax Act, 1961 can be availed for all life insurance payouts. These payouts comprise either the death benefit, which is payable to the policyholder’s family, in the case of sudden demise, or the maturity benefit, which is payable to the policyholder for surviving the policy’s term. The section also exempts the accrued bonuses, if any, from being taxed. There is also no specified upper limit of exemption, under the section.
Various Exemptions under Section 10 of Income Tax Act are as follows:
|Section and Sub-section||Category||Exemption|
|10(1)||Self-employed agricultural income||No tax|
|10(2)||Income of a member of Hindu –undivided Family||No tax|
|10(10C)||Voluntary retirement compensation||Exempt up to Rs. 5 lakh|
|10(10D)||Life insurance benefit including bonus||No tax|
|10(10BC)||Government compensation for damage due to disaster||No tax|
|10(11)(12)||Amount withdrawn from provident fund||No tax|
|10 (13A)||House Rent Allowance (HRA)||Least of the below is exempted:
Actual HRA, 40% of salary or 50%
of salary if living in metro
cities Rent paid excluding 10% of salary
|10(15)||Earnings of tax-free securities||No tax|
Terms and conditions for availing tax exemption under Section 10(10D)
You can avail tax deductions under this section only after fulfilling the terms and conditions given below:
All claims, including death benefit, maturity benefit and bonuses received are exempt from taxation.
For life insurance policies purchased between April 1, 2003 and March 31, 2012, the premium paid, for any given financial year during the policy’s term, cannot be more than 20% of the sum assured.
Those life insurance policies, which are purchased after April 1, 2012, the premium payments, cannot be more than 10% of the sum assured.
In the case of the policyholder being either severely disabled or suffering from a disease as per the relevant provisions of the act, and the policy being purchased after April 1, 2013, the premium payments should not be more than 15% of the sum assured. Section 80U of the act lists the disabilities, like mental retardation, autism etc., while Section 80DDB specifies the diseases.
Both maturity and death benefits made under a Keyman insurance policy are not eligible for tax exemption under Section 10(10D). A Keyman insurance policy is availed by companies or firms to protect themselves from monetary loss because of sudden demise of a ‘key’ company employee. Key man basically refers to a key employee, and subject to certain rules, there could be several employees insured under the Keyman policy by a company.
Other Exemptions under Section 10
Salaried employees are given several benefits by the Government, most of which are considered a part of the person’s total income. Some of these are allowed exemption under Section 10.
1) Special allowance under section 10(14):
Section 10(14) offers allowances and benefits to employees, for performing employment-related duties, by the employer. These allowances are not levied any tax, however the exception is dependent on the amount authorized for a specific purpose. Some of the most common sub-sections under Section 10(14) of the Income Tax Act include:
other allowances under sub-section (14)(ii) of section 10 of the income tax act include helper or assistant allowance, uniform allowance, an allowance for underground mine workers, employees in highly active areas, workers in specified modified field areas, and transport allowance to physically disabled employees.
Important note about Section 10(10D) of the Income Tax Act:
You must remember that if the maturity benefit is outside the ambit of tax exemption under Section 10(10D), then a Tax Deduction at Source (TDS) rate of 5% is applicable on net income from policy proceeds. In 2019, the government had amended Section 194DA of the act to increase the TDS rate from 1% on gross payout to 5% on net income payout. You must, however, remember that if person in aggregate received proceeds from life insurance in financial year like for maturity benefits below Rs 1 lakh, no TDS can be levied. In case of non-submission of PAN card, while making claims, a TDS rate of 20% is applicable.
Typically, life insurance policies purchased from insurance companies not registered in India ( i.e.,foreign companies) are beyond the ambit of claiming tax exemption under Section 10(10D).
Thus you can claim tax exemption under Section 10(10D) by purchasing a best life insurance policy. You can also zero in on ULIPs, which provide the protection of life cover along with high, market-linked returns. ULIPs provide income tax benefits under Section 80C and Section 10(10D) of the income tax Act. You can consider the Invest 4G plan from Canara HSBC Oriental Bank of Commerce Life Insurance, which provides multiple choices to invest your savings along with the benefit of a life insurance cover. With this plan you can choose between 7 different funds and 4 portfolio strategies to invest your money. Loyalty Additions and Wealth Boosters adds to your savings.