Everything You Need To Know About Section 10 Of Income Tax Act
Tax exemptions under Section 10 of the Income Tax Act-1961 can be confusing. With many specific rules, it's easy to make mistakes and miss out on savings. This is especially true for salaried individuals.
The blog will simplify these key exemptions. We will exclusively cover life insurance benefits, which are covered in subsection 10D of the income tax rule. Keep reading to learn how to maximise your tax benefits.
About The Rule
Section 10 specifies various non-taxable incomes. This provision helps lower tax liability, especially for salaried individuals.
Moreover, these exclusions aim to promote particular activities and ease financial strain. They support savings, investments, and other specific purposes. Consequently, individuals must claim these benefits when submitting their returns.
Different types of earnings fall under these exemptions. These are not added to the annual income total. Therefore, using Section 10 wisely can result in significant tax relief. Understanding applicable exclusions ensures compliance and maximises advantages. Thus, staying updated on these rules is important for all taxpayers.
Here is a concise summary of key exemptions:
Section | Exemption Type | Description |
10(1) | Agricultural income | Earnings from agriculture, rent from agricultural land, and sales of agricultural products. |
10(2) | Hindu Undivided Family | Income received by a member from the HUF's estate. |
10(2A) | Partnership firm | Partner's share of profit from a partnership firm, subject to conditions. |
10(4) | NRI income | Interest on specified securities and bonds, NRE(Non-resident external) account deposits. |
10(5) | Leave Travel Concession- LTC | Travel expenses for employees and their families within India. |
10(6) | Foreign representatives | Income of foreign diplomats and representatives in India. |
10(7) | Government employees abroad | Allowances for Indian government employees working abroad. |
10(10CC) | Non-monetary benefits | Other perks provided by the employer, already taxed at the employer's end. |
10(10C) | Voluntary retirement | Compensation received on voluntary retirement, subject to conditions. |
10(10D) | Life insurance | Maturity amount and bonus from life insurance policies, subject to conditions. |
10(11) | Provident fund | Interest and maturity amounts from Provident Fund and Sukanya Samriddhi Scheme. |
10(10BC) | Disaster relief | Government assistance for damages due to natural disasters or human-caused events. |
10(13A) | House Rent Allowance or HRA | Actual HRA received or rent paid minus 10% of salary, subject to conditions. |
10(14) | Special allowances | Various allowances like conveyance, uniform, research, and travel allowances. |
10(15) | Investment income | Interest from specified investments like bonds, securities, and savings certificates. |
| 10(26) | Scheduled Tribes | Income exemption for Scheduled Tribes in specified areas and states. |
| 10(23 C) | Charitable institutions | Earnings of approved charities, educational bodies, and hospitals. |
| 10(37) | Agricultural land transfer | Gains from compulsory acquisition of agricultural land (urban), with conditions. |
What Are The Exemptions Under Section 10(10D) Of Income Tax Act?
Section 10(10D) defines conditions for tax-exempt payouts from life insurance policies.
First and foremost, proceeds from the cover (bonus included) are generally exempt from taxation. However, this exemption is subject to certain conditions.
Specific Conditions For Section 10D Of Income Tax Act
Let's look at the premium thresholds:
- For policies issued between April 2003 - March 2012, if the annual premium exceeds 20% of the sum assured, the exemption does not apply1.
- For sureties issued in April 1 2012 or later, the exemption is valid only if the annual premium is 10% or less of the sum assured.
In addition, there are special cases to note:
- The premium ceiling is increased to 15% of the total assured for covering people with disabilities or certain illnesses that are issued on or after April, 2013.
- If the yearly premium for a Unit Linked Insurance Plan (ULIP) issued on or after February 1, 2021 reaches INR 2,50,000, the plan loses its tax-exempt status2.
- Only non-ULIP policies with annual premiums of INR 5,00,000 or less are eligible for exemption if they are issued on or following April 1, 20233. This cap covers all of the individual's policies of that kind combined.
Death Benefits
Moreover, 10(10D) income tax states that sums received upon the policyholder’s death are fully exempt from tax, regardless of the premium amounts paid. By doing this, it guarantees that beneficiaries receive the desired level of financial support free from taxes.
Keyman Policies
Provisions which are taken by employers on the lives of their employees, do not qualify for tax exemption under Sec 10 (10D).
Exemption Type | Issued On or After | Tax-free if premium |
Death Benefit | - | Fully tax-free for the nominee. |
Maturity Benefit | April 1 2003 | ? 20% of sum assured. |
Maturity Benefit | April 1 2012 | ? 10% of sum assured. |
Disability Policies | April 1 2013 | ? 15% of sum assured. |
ULIPs | February 1 2021 | ? INR 2.5 lakhs. |
New Policies | April 1 2023 | ? INR 5 lakhs. |
Section 10 (10D) Maturity Return Requirements
To enjoy the exemptions make sure your policy maturity payout meets specific conditions.
- Death Benefit: The payout must occur upon the policyholder's death.
- Exclusions:
- Policies under Section 80DD sub-section (3) are not eligible.
- Annuity or retirement payouts are excluded.
- Benefits from group insurance policies provided by employers are not covered.
- Section 10(10D) Limits: As noted earlier, annual premiums must adhere to certain limits based on the policy's purchase date and specific conditions.
- Tax Deducted at Source (TDS): If the proceeds is not exempt, TDS applies:
- 5% TDS with a PAN4.
- 20% TDS without a PAN.
These conditions ensure tax-exempt status for life insurance payouts, promoting compliance and financial security.
Eligibility For Section 10(10D)
To be eligible for 10(10D) benefits under this provision several specific criteria must be met:
- Eligibility:
- Both Indian residents and non-residents are eligible.
- Relevant both the tax regimes.
- Life Insurance Policy:
- The policy must be a life insurance policy.
- It needs to provide coverage in the event that the insured passes away.
- Minimum Duration:
- The policy needs to be active for at least two years.
- If surrendered or cancelled before this period, tax benefits are forfeited.
- Issue Date:
- The coverage needs to be issued on April 1, 2012, or later.
- Premium Limits:
- Premiums paid should fall within the threshold specified in Section 10(10D).
- Types of Payouts:
- Tax exemptions apply to life insurance claim payouts.
- This includes maturity benefits, bonuses, and death benefits.
Conclusion
Section 10(10D) offers significant tax advantages for life insurance policies. To benefit, stay vigilant. Regularly check your policy’s performance. Understand the fine print. Use withdrawals wisely. By taking this strategy, you can protect your fiscal well-being and make the most out of your coverage.
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Frequently Asked Questions On Section 10
1. How is exemption under section 10 calculated?
Section 10 has different exemptions, each with its own rules. For example, Section 10(10D) covers life insurance policies. If your cover is from April 2003 - March 2012, you cannot claim an exemption if the annual premium is over 20% of the sum assured. For policies issued thereon, the premium must be 10% or less of the sum assured to get the exemption. Understanding these rules helps you know what you can claim. Always check the specific conditions for your situation. It makes a big difference in your tax benefits.
2. Can I claim HRA without a rent receipt?
No, you cannot. For monthly rent over INR 3,000, submitting rent receipts is necessary. Employers need these receipts to process your HRA claim. Without them, you lose the exemption. Always keep rent receipts safe to ensure your HRA benefits are granted.
3. What is the maximum HRA claim?
To determine the highest HRA exemption, compare these values:
- HRA received.
- 50% of basic salary for metro areas; 40% for non-metro locations.
- Rent paid minus 10% of basic salary.
The lowest amount among these three is your exemption.
References:
- Income Tax Department <https://tinyurl.com/4kv8mh3n>
- The Economic Times <https://tinyurl.com/nhaatmuk>
- EY <https://tinyurl.com/2s3bvv85>
- Tax Bulletin <https://tinyurl.com/33z495ej>
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