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NISM-Series-X-B: Investment Adviser (Level 2) · Life Insurance Products

Taxation of Life Insurance Products: Sections 80C and 10(10D)

Updated 11 October 2026 · Fact-checked

Life insurance tax has two parts. Section 80C gives a deduction on premiums, capped at ₹1,50,000 overall and at 10% of sum assured for policies issued from 1 April 2012. Section 10(10D) exempts maturity and death proceeds, but not when the premium exceeds the prescribed percentage of sum assured or the high-premium limits apply.

Understand Taxation of Life Insurance Products

Tax on life insurance is tested at three points: when you pay the premium, when the policy matures, and when the insured dies. Each point has its own rule. Keep them separate in your mind.

Premium (Section 80C). Premium paid for yourself, your spouse or your children can be claimed as a deduction from total income. It counts inside the overall 80C ceiling of ₹1,50,000, shared with items such as PPF and EPF. This is available only under the old tax regime. The new regime under Section 115BAC does not allow it.

Premium cap. The deduction is not free of limits. For policies issued on or after 1 April 2012, only the premium up to 10% of the actual capital sum assured qualifies. For policies issued on or before 31 March 2012 the limit is 20%. For policies issued on or after 1 April 2013 on the life of a person with severe disability (Section 80U) or a person suffering from a disease specified under Section 80DDB, the limit is 15%. Premium above the limit is simply not deductible.

Maturity and death proceeds (Section 10(10D)). The general rule is that the sum received, including bonus, is exempt. The exemption is lost in set cases:

  • Keyman insurance.
  • Amounts received under policies covered by Sections 80DD(3) and 80DDA(3).
  • Policies where the premium in any year exceeds the prescribed percentage of sum assured. This premium test applies to ULIPs as well as other policies. The percentages are 20% for policies issued from 1 April 2003 to 31 March 2012, and 10% for policies issued from 1 April 2012. The 15% limit applies to policies issued on or after 1 April 2013 on the life of a person with severe disability (Section 80U) or a disease specified under Section 80DDB.

Death proceeds stay exempt even when the premium percentage test fails.

High-premium policies. For non-ULIP policies issued on or after 1 April 2023, the premium is added up across all such policies. If this aggregate premium exceeds ₹5,00,000 in any year, the maturity proceeds are not exempt. The exemption is lost only when the premium exceeds the limit. A premium of exactly ₹5,00,000 does not trigger the rule. The gain, meaning proceeds minus premiums paid, is taxed. For ULIPs issued on or after 1 February 2021, if the aggregate premium exceeds ₹2,50,000 in any year, the exemption on maturity is lost and the gains are taxed as capital gains. In both cases death proceeds remain exempt.

Key formulas to remember

80C overall ceiling
Maximum 80C deduction = ₹1,50,000 (all eligible items combined)
Old regime only. Not available under Section 115BAC.
Eligible premium, policy issued on or after 1 April 2012
Eligible premium ≤ 10% × actual capital sum assured
15% for severe disability (Section 80U) or disease specified under Section 80DDB (policies from 1 April 2013). Policies issued on or before 31 March 2012: 20%.
10(10D) premium test
Exempt only if annual premium ≤ 10% of sum assured (20% for policies issued 1 April 2003 to 31 March 2012)
The test is for any year of the policy. Failing it makes maturity taxable, but not death proceeds.
High-premium non-ULIP limit
Policies issued on or after 1 April 2023: aggregate annual premium across all such non-ULIP policies > ₹5,00,000 → maturity taxable
Exemption is lost only when the premium exceeds ₹5,00,000. Taxable amount = maturity proceeds − total premiums paid. Death proceeds exempt.
High-premium ULIP limit
ULIP issued on or after 1 February 2021: aggregate annual premium > ₹2,50,000 → maturity not exempt
Gains taxed as capital gains. Death proceeds exempt.
Death proceeds
Death benefit under a life policy: exempt under 10(10D) regardless of the premium percentage
Exception: keyman insurance.

How to solve Taxation of Life Insurance Products questions

Use the same sequence for any question on life insurance tax. It stops you mixing up the rules.

  1. 1Identify what is being taxed: premium deduction, maturity proceeds, death proceeds or surrender.
  2. 2Note the date of issue of the policy. The limits change at 1 April 2003, 1 April 2012, 1 February 2021 (ULIPs) and 1 April 2023.
  3. 3Check the type: ordinary non-ULIP policy, ULIP, keyman policy or annuity.
  4. 4Compute the percentage test: annual premium ÷ sum assured × 100, and compare it to the applicable limit (10%, 15% or 20%).
  5. 5For a premium deduction, cap the eligible premium at that percentage of sum assured and then apply the ₹1,50,000 overall limit and the regime check.
  6. 6For maturity, apply the high-premium limit (₹5,00,000 non-ULIP from 1 April 2023; ₹2,50,000 ULIP from 1 February 2021).
  7. 7If taxable, the gain is proceeds minus premiums paid. If it is a death claim, treat it as exempt unless it is keyman insurance.
  8. 8Match your result to the option, checking that it does not mix rules from a different issue date.

Quickest way: Date, percentage, limit

When to use it: Use when a question gives a policy date, premium and sum assured and asks whether tax applies.

  1. Read the issue date first and fix the percentage: 20% before 1 April 2012, 10% after.
  2. Divide premium by sum assured. If it is above the percentage, maturity is taxable and the 80C claim is capped.
  3. If the policy is new (non-ULIP from 1 April 2023, ULIP from 1 February 2021), compare annual premium with ₹5,00,000 or ₹2,50,000.
  4. If the question says death, answer exempt unless it is keyman insurance.

Common mistakes in Taxation of Life Insurance Products

  • Treating death proceeds as taxable when the premium exceeds 10% of sum assured.

    Students apply the premium test to every payout.

    Fix: Remember that the premium test and the high-premium limits remove the exemption on maturity only. Death proceeds stay exempt, except for keyman insurance.

  • Using 20% for every policy.

    The older 20% limit is easy to remember.

    Fix: Check the issue date. Only policies issued before 1 April 2012 (and in the 2003 to 2012 window for 10(10D)) use 20%. After that it is 10%.

  • Allowing 80C deduction under the new tax regime.

    Students forget that 80C is a deduction from the old regime.

    Fix: Attach 80C to the old regime. Under Section 115BAC the deduction is not available.

  • Mixing the ₹5,00,000 and ₹2,50,000 limits.

    Both are high-premium limits and look alike.

    Fix: ₹5,00,000 is for non-ULIP policies issued from 1 April 2023. ₹2,50,000 is for ULIPs issued from 1 February 2021.

  • Taxing the whole maturity amount of a high-premium policy.

    Students forget that premiums paid are returned tax-free.

    Fix: Tax only the gain: maturity proceeds minus total premiums paid.

  • Assuming the 80C limit applies to the policy alone.

    Students forget PPF, EPF and other items share the ceiling.

    Fix: Compute the eligible premium first, then add other 80C items and cap the total at ₹1,50,000.

Worked examples

Example 1

Rahul bought an endowment policy in 2018 with a sum assured of ₹5,00,000 and an annual premium of ₹60,000. He pays tax under the old regime and has no other 80C investment. What is his 80C deduction for the premium, and is the maturity amount exempt under Section 10(10D)?

Show the solution
  1. The policy was issued after 1 April 2012, so the limit is 10% of sum assured.
  2. 10% of ₹5,00,000 = ₹50,000.
  3. Annual premium ₹60,000 is more than ₹50,000.
  4. Eligible premium for 80C is capped at ₹50,000. This is below ₹1,50,000, so the full ₹50,000 is allowed.
  5. Because the premium exceeds 10% of the sum assured, the exemption on maturity under 10(10D) is not available.

Answer: 80C deduction is ₹50,000. The maturity proceeds are not exempt under Section 10(10D). Death proceeds, had they arisen, would have remained exempt.

Example 2

Meera bought a non-ULIP endowment policy on 1 June 2023 with a sum assured of ₹1,00,00,000 and annual premium of ₹6,00,000. She paid for 10 years and received ₹85,00,000 on maturity. It is her only life policy. How much of the maturity amount is taxable?

Show the solution
  1. Premium test: 10% of ₹1,00,00,000 = ₹10,00,000. Premium ₹6,00,000 is within it, because the sum assured is ₹1,00,00,000. So the premium percentage test does not take away the exemption.
  2. The policy was issued on or after 1 April 2023, so check the high-premium limit of ₹5,00,000. This is her only non-ULIP policy, so her aggregate annual premium is ₹6,00,000.
  3. Aggregate premium ₹6,00,000 is more than ₹5,00,000. The 10(10D) exemption on maturity fails solely for this reason.
  4. Total premiums paid = ₹6,00,000 × 10 = ₹60,00,000.
  5. Taxable amount = maturity proceeds − total premiums paid = ₹85,00,000 − ₹60,00,000 = ₹25,00,000.

Answer: ₹25,00,000 is taxable as income. The remaining ₹60,00,000 is not taxed. The exemption is lost only because the aggregate premium exceeds ₹5,00,000. Had she died during the term, the death proceeds would have been exempt.

Exam tips

  • Questions usually give an issue date. Read it first, because it decides the percentage and which limit applies.
  • Expect trap options that apply the premium test to death proceeds. Death is exempt except for keyman insurance.
  • Memorise the numbers together: 10%, 15%, 20%, ₹1,50,000, ₹5,00,000 and ₹2,50,000. Know which one belongs to which case.
  • With negative marking, do not guess when the date is unclear. Work out the percentage test, then the high-premium test, then pick.
  • If an option says the premium is deductible without any cap, it is wrong.

Practice questions from Life Insurance Products

Taxation of Life Insurance Products in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

Taxation of Life Insurance Products: frequently asked questions

What is the 80C limit for life insurance premium?

Section 80C allows a total deduction of ₹1,50,000, shared with other eligible items. For policies issued on or after 1 April 2012, only premium up to 10% of the actual capital sum assured is eligible. The deduction is available under the old regime only.

When is maturity not exempt under Section 10(10D)?

It is not exempt for keyman policies, and when annual premium exceeds the prescribed percentage of sum assured. It is also not exempt for non-ULIP policies issued from 1 April 2023 with aggregate annual premium above ₹5,00,000, or ULIPs issued from 1 February 2021 with aggregate annual premium above ₹2,50,000.

Is the death benefit of a life insurance policy taxable?

Death proceeds are generally exempt under Section 10(10D), whatever the premium percentage or the high-premium limits. The usual exception is a keyman insurance policy.

How is ULIP maturity taxed if the premium exceeds ₹2,50,000?

If the aggregate premium on ULIPs issued on or after 1 February 2021 exceeds ₹2,50,000 in any year, the exemption is lost. The gains are taxed as capital gains. Death proceeds remain exempt.