Is Life Insurance Taxable

While life insurance helps in taking care of your family’s financial needs in the event of your sudden demise, a lot of people take one with the intent to save taxes. Life insurance premiums are eligible for tax deductions of maximum Rs. 1.5 lakhs per year under Section 80C of the IT Act.

It is important to know insurance pay-outs are generally not taxable. Here are some of the aspects to know about tax on life insurance pay-outs.

1. Tax on Sum Assured

In life insurance, the sum assured is given to the policy nominee when an unforeseen event occurs. As per Section 10 (10D) of the IT Act, any amount paid to the life insurance beneficiary is completely tax-free in India. There are some exceptions but in most cases the nominee gets the sum assured in full.

2. Tax on Maturity Benefit

For individuals who pay all premiums during the policy tenure, they are entitled to get maturity benefits as part of the life insurance terms. Under Section 10 (10D), these proceeds which are paid to the policyholder at the time of maturity are completely tax-free.

3. TDS on Life Insurance

As per Section 194DA, in case the life insured gets maturity benefit or bonus amount from the life insurance provider and if it is not exempt as per Section 10(10D), a 2% TDS is applicable on such amount. This means all the proceeds which are exempt under Section 10(10D) are also exempt from any TDS.