Are single premium life insurance policies eligible for tax benefits?

A life insurance policy will now be eligible for tax benefits under sections 80C and 10(10D) of the Income Tax Act only if the premium paid is less than 10% of the sum assured on death. This criterion is applicable to both regular as well as single premium insurance policies. These amendments are applicable to those policies issued on or after the 1st April 2013.

The earlier provision allowed an exemption, if the annual premium did not exceed 20% of the actual sum assured. Please note, deduction for life insurance premium with respect to insurance policies issued up to 31st March 2012 shall not exceed 20% of the sum assured.

Hence,

  • Any money received from a life insurance policy are entitled for a tax benefit under Section 10 (10D) only if the minimum sum assured throughout the policy term remains 10 times the single premium paid.
  • The tax benefit under Section 80 C is available only if the annual premium is less than 10% of the sum assured.

Note:
If the maturity is not exempted under section 10(10D) and the amount received from a policy is more than Rs 1,00,000, it will be taxable and TDS @ 1% shall be deducted by the insurer before making this payment. If the amount received is less than Rs 1,00,000, then no TDS shall be deducted but the amount received shall be fully taxable, it will be taxed at income tax slab rate

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