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Insurance maturity proceeds - Exemption under Section 10 (10) (d)

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13 Nov, 2022 by  Basker R

Need help on section 10 (10) (d). If a maturity proceeds from an insurance policy does not qualify for exemption under section 10(10)(d) [ for e.g., single premium policy or investment type policy), then the whole maturity proceeds is taxable or only the gain portion (i.e., maturity amount less premium paid) is taxable? I have given below some references from CBDT circular and recent case from IT. Need experts' guidance on this although the below links provide some guidance.


Circular No. 7/2003-Income Tax Dated 5-9-2003 (taxguru.in) (section 10.3)

Section 10(10D) Only net income is taxable upon the maturity of a life insurance policy - Faceless Compliance

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25 Nov, 2022
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Dear Basker, only the gain portion is taxable. For example if you have invested in single premium policy with premium of Rs10L and on maturity you get Rs21L then Rs21L (maturity) - Rs10L (premium paid) = Rs11L, you are liable to pay tax only on Rs11L.


Hope this clarifies.


Best wishes


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The taxability of such proceeds depends upon :

  1. If an investor took rebate u/s 80C for such a policy, then the income would be equal to the rebate taken. Please refer to the following from 80C "the aggregate amount of the deductions of income so allowed in respect of the previous year or years preceding such previous year, shall be deemed to be the income of the assessee of such previous year and shall be liable to tax in the assessment year relevant to such previous year."
  2. If No rebate was taken u/s 80C for a policy, then I wonder why would there by any tax liability the entire maturity proceeds. In most of these situtations there would not be any capital gain, rather a capital loss (considering surrender charges). Even if there is some gain, then the tax liability should only be on the gain. I am not aware of any such section in the tax laws which will tax the principal payout as income.
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