CBDT issues Guidelines under clause (10D) of section 10 of Income-tax Act from AY 2024-25
Clause (10D) of section 10 of the Income-tax Act, 1961 (the Act) provides for income-tax exemption on any sum received under a life insurance policy, including the sum allocated by way of bonus on such policy subject to certain exclusions.
The Finance Act 2023 amended the provisions with effect from AY 2024-25 to provide (except for any sum received on the death of a person) as under:
(i) the sum received under a life insurance policy, other than a unit linked insurance policy (ULIP), issued on or after the 1st day of April, 2023, shall not be exempt if the amount of premium payable for any of the previous years during the term of such policy exceeds Rs 5,00,000.
(ii) if premium is payable for more than one life insurance policy, other than ULIP, issued on or after 01.04.2023, the exemption shall be available only with respect to such policies where the aggregate premium does not exceed Rs 5,00,000 for any of the previous years during the term of any of those policies.
Necessary amendments had also been made to section 56 and section 24.
CBDT observed that Finance Act, 2021 had earlier provided that the sum received under any ULIP (except on the death of a person), issued on or after the 01.02.2021 shall not be exempt under said clause, if the amount of premium payable for any of the previous years during the term of such policy exceeds Rs 2,50,000. It was also provided that if the premium is payable for more than one UUPs, issued on or after the 01.02.2021, the exemption under the said clause shall be available only with respect to such policies where the aggregate premium does not exceed Rs 2,50,000 for any of the previous years during the term of any of the policies.
CBDT issues Guidelines under clause (10D) of section 10 of Income-tax Act from AY 2024-25
In view of the above, the CBDT has issued Circular No. 15 of 2023 dated 16.08.2023 for issuance of guidelines for detremination of exemption under section 10(10D) for removal of difficulty.
It has been clarified that Consideration received during the prevIous year under an eligible life insurance policy shall be exempt or not exempt under clause (100) of section 10 of the Act, subject to the satisfaction of other provisions of said clause.
The Circular gives number of illustrations / examples showing determination of the revised provisions with respect to exemption u/s 10(10D) under different situations:
Situation 1: No consideration is received by the assessee on any 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 exempt.
Situation 2: Consideration has been received by the assessee under anyone or more eligible life insurance policies during any previous year preceding the current previous year and it has been claimed exempt under clause (10D) of section 10 of the Act.
Clarification on GST Component
It is also clarified that the premium payable/ aggregate premium payable for a life insurance policy/ policies, other than a unit linked insurance policy, issued on or after the 1st day of April, 2023 , for any previous year, shall be exclusive of the amount of the Goods and Service Tax payable on such premium.
Clarity on premium of Term life insurance policy
Clause (10D) of section 10 of the Income-tax Act, 1961 (the Act) provides for income-tax exemption on any sum received under a life insurance policy, including the sum allocated by way of bonus on such policy subject to certain exclusions.
The Finance Act 2023 amended the provisions with effect from AY 2024-25 to provide (except for any sum received on the death of a person) as under:
(i) the sum received under a life insurance policy, other than a unit linked insurance policy (ULIP), issued on or after the 1st day of April, 2023, shall not be exempt if the amount of premium payable for any of the previous years during the term of such policy exceeds Rs 5,00,000.
(ii) if premium is payable for more than one life insurance policy, other than ULIP, issued on or after 01.04.2023, the exemption shall be available only with respect to such policies where the aggregate premium does not exceed Rs 5,00,000 for any of the previous years during the term of any of those policies.
Necessary amendments had also been made to section 56 and section 24.
CBDT observed that Finance Act, 2021 had earlier provided that the sum received under any ULIP (except on the death of a person), issued on or after the 01.02.2021 shall not be exempt under said clause, if the amount of premium payable for any of the previous years during the term of such policy exceeds Rs 2,50,000. It was also provided that if the premium is payable for more than one UUPs, issued on or after the 01.02.2021, the exemption under the said clause shall be available only with respect to such policies where the aggregate premium does not exceed Rs 2,50,000 for any of the previous years during the term of any of the policies.
In view of the above, the CBDT has issued Circular No. 15 of 2023 dated 16.08.2023 for issuance of guidelines for removal of difficulty.
It has been clarified that Consideration received during the previous year under an eligible life insurance policy shall be exempt or not exempt under clause (100) of section 10 of the Act, subject to the satisfaction of other provisions of said clause.
The Circular gives number of illustrations / examples showing determination of the revised provisions with respect to exemption u/s 10(10D) under different situations:
Situation 1: No consideration is received by the assessee on any 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 exempt.
Situation 2: Consideration has been received by the assessee under anyone or more eligible life insurance policies during any previous year preceding the current previous year and it has been claimed exempt under clause (10D) of section 10 of the Act.
Clarification on GST Component
It is also clarified that the premium payable/ aggregate premium payable for a life insurance policy/ policies, other than a unit linked insurance policy, issued on or after the 1st day of April, 2023 , for any previous year, shall be exclusive of the amount of the Goods and Service Tax payable on such premium.
Clarity on premium of Term life insurance policy
It has been also clarified that the provision of the sixth and seventh proviso of clause (10D) of section 10 shall not be applicable in case of a term life insurance policy i.e. where 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. Hence, any sum received under a term insurance policy shall continue to be exempt under clause (10D) of section 10 of the Act, irrespective of the amount of the premium payable in respect of such policy. Further the premium paid for such policies shall not be counted for checking Rs 5,00,000 limit.
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