CBDT Issues Clarifications on the Applicability of Section 10(10D) Exemption on Life Insurance Policies

CIRCULAR NO. 15 OF 2023, dated 16-08-2023

Section 10(10D) provides an exemption with respect to any sum received under the life insurance policy. However, no exemption is allowed if the premium payable for any of the years during the term of the policy exceeds 10% of the actual capital sum assured (‘excess premium policy’).

With effect from Assessment Year 2024-25, Section 10(10D) is amended to provide an additional restriction that no exemption with respect to any sum received under any life insurance policy, other than Unit Linked Insurance Policy (ULIP), issued on or after 01-04-2023 shall be allowed if the amount of premium payable for any of the previous years during the term of the policy exceeds Rs. 5,00,000.

Thus, exemption under section 10(10D) in respect of life insurance policies issued on or after 01-04-2023 shall be allowed only when the premium payable for any of the years during the term of the policy does not exceed Rs. 5,00,000, and the premium should not exceed 10% of the sum assured.

Further, where the premium is payable by a person for more than one life insurance policy issued on or after 01-04-2023, the aggregate premium of all such life insurance policies should not exceed Rs. 5,00,000 during the term of any of those policies. Where the aggregate premium of such life insurance policies exceeds Rs. 5,00,000 in any year during the term of such policies, the exemption shall be allowed only for those life insurance policies, the aggregate of which does not exceed the threshold of Rs. 5,00,000. This condition is specified in the seventh proviso.

To clarify these amendments, the CBDT has issued a circular to provide guidelines on different situations that may arise while looking for exemption for life insurance policies issued on or after 01-04-2023 (‘eligible life insurance policies’).

Situation 1: Where no consideration is received, or no exemption is claimed

Where the assessee receives no consideration on eligible life insurance policies during any previous year preceding the current previous year or consideration has been received on such eligible life insurance policies but has not been claimed as exempt. The exemption under section 10(10D) shall be determined as under:

(a) If consideration is received from one life insurance policy, the exemption shall be available to the assessee only if the premium payable on such eligible life insurance policy doesn’t exceed Rs. 5,00,000.

(b) If consideration is received from more than one eligible insurance policy and the aggregate of the amount of premium payable on such eligible life insurance policies exceeds Rs 5,00,000 for any previous year during the term of such policies. In that case, the exemption shall be available only for those life insurance policies where the aggregate amount of the premium payable does not exceed Rs 5,00,000.

Situation 2: Exemption claimed for consideration received for eligible Life insurance Policy in any previous year

Where the assessee has received consideration in respect of eligible life insurance policies in any previous year preceding the current year, and it has been claimed to be exempt under Section 10(10D) (‘old eligible life insurance policies’). In such a situation, the exemption for the remaining policies whose term coincides with the old eligible life insurance policies shall be determined as under:

(a) If consideration is received from one or more than one eligible life insurance policies, the exemption shall be available only if the aggregate amount of premium payable on such eligible life insurance policies and old eligible life insurance policies does not exceed Rs 5,00,000 for any of the previous years during the term of such eligible life insurance policies.

(b) If the aggregate of premium payable on eligible life insurance policies and old eligible life insurance policies exceeds Rs. 5,00,000, the exemption shall be available only for those eligible life insurance policies where the aggregate amount of premium along with the aggregate amount of premium of old life insurance policies does not exceed Rs. 5,00,000 for any of the previous years during the term of any of such eligible life insurance policies.

Further, it is clarified that the premium payable or aggregate premium payable for a life insurance policy shall be exclusive of the amount of the Goods and Service Tax payable on such premium.

In addition, it is clarified that these provisions shall not be applicable on term life insurance policies, i.e., where the sum under a life insurance policy is only paid to the nominee in case of the death of the person insured during the term of the policy, and no amount is paid to anyone if the insured person survives the policy tenure.

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