NISM Certifications · NISM-Series-X-B: Investment Adviser (Level 2) · Life Insurance Products
Caselet: Ms. Kapoor, 45, pays an annual premium of Rs 1,00,000 for a non-linked traditional life policy issued after 1 April 2012 with sum assured Rs 12,00,000. The policy has a 20-year term. Assume, as per the Income-tax Act provisions studied at this level for this exam, that exemption of maturity proceeds under Section 10(10D) requires premium to be within a set percentage of the sum assured for such policies. What is the position for this policy?
The premium of Rs 1,00,000 is about 8.33% of the Rs 12,00,000 sum assured, which is within the 10% limit for policies issued after 1 April 2012. The maturity proceeds therefore qualify for Section 10(10D) exemption, subject to any aggregate premium cap.
- APremium is 8.33% of sum assured, within the 10% limit, so maturity proceeds are exemptCorrect
- BPremium exceeds 10% of sum assured, so maturity proceeds are not exempt under 10(10D)
- CPremium exceeds 20% of sum assured, so only the bonus is taxable
- DExemption does not depend on premium to sum assured ratio
Explanation
Premium 1,00,000 divided by sum assured 12,00,000 is 8.33%. For policies issued from 1 April 2012 the premium in any year must not exceed 10% of the actual capital sum assured. 8.33% is below 10%, so maturity proceeds qualify for exemption, subject to the aggregate premium cap for policies from 1 April 2023.
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