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NISM Certifications · NISM-Series-X-B: Investment Adviser (Level 2) · Taxation of Other Products

Caselet: A resident investor receives a maturity amount from a life insurance policy that is not a ULIP. The premium paid in each year was well within 10% of the sum assured for a policy issued after 1 April 2012. The amount was received on maturity. What is the tax treatment of the maturity proceeds as taught at this level, ignoring high-premium policy rules?

The maturity proceeds are fully exempt under section 10(10D). The premium in each year stayed within 10% of the sum assured for a policy issued after 1 April 2012, so the condition is met. The capital gain or slab-rate treatments apply only when the exemption conditions are not satisfied.

  1. AFully exempt under section 10(10D)Correct
  2. BTaxable as long-term capital gain
  3. CTaxable as income from other sources at slab rates
  4. DTaxed at 30% flat as a lottery-type income

Explanation

Under section 10(10D), maturity proceeds including bonus are exempt if the annual premium does not exceed 10% of the sum assured for policies issued after 1 April 2012, and the high-premium restrictions are ignored here. Since the condition is met, the proceeds are exempt. The capital gain or other-source treatment would apply only where the exemption is lost.

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