Section 10(10D) for high-premium policies: what is taxed and what stays exempt

By Eldar Edmond Grady, CEO, PPLI.com. Research checked 20 October 2026.हिन्दी में पढ़ें

Indian law as at 20 October 2026, Financial Year 2026-27. Section numbers follow the Income-tax Act 1961; the Income-tax Act 2025 applies from 1 April 2026 and renumbers them, and we have not verified the new number for section 10(10D) against the official concordance.

PPLI.com is a research publisher. It is not a tax adviser, it is not registered with IRDAI or SEBI, and it does not solicit or arrange insurance in India. Nothing on this page is advice on your own policy or return.

What section 10(10D) exempts

Section 10(10D) exempts any sum received under a life insurance policy, including a bonus, subject to exceptions. The older exceptions are about the ratio of premium to cover: for a policy issued after 1 April 2012, no exemption if the premium in any year exceeds 10% of the actual capital sum assured (sub-clause (d)); 20% for policies issued between April 2003 and March 2012; higher percentages for persons with disability or specified disease. A keyman policy is excluded, and so is a sum received under section 80DD(3) or 80DDA(3). Those rules still apply, and a policy that fails the 10% test is outside the exemption whatever its premium.

The newer exceptions are about absolute premium, and they are the ones that matter to a family with real money. The fourth and fifth provisos, inserted by the Finance Act 2021, cover unit-linked policies issued on or after 1 February 2021: if the premium payable for any year exceeds ₹2,50,000, singly or in aggregate across such policies, the exemption does not apply to that policy or those policies. The sixth and seventh provisos, inserted by the Finance Act 2023 with effect from assessment year 2024-25, do the same for other life policies issued on or after 1 April 2023 where the premium exceeds ₹5,00,000. The eighth proviso, replaced by the Finance Act 2025 from 1 April 2025, says that the fourth to seventh provisos do not apply to a sum received on the death of a person, nor to a policy issued by an IFSC insurance intermediary office.

Your policy’s type and issue date decide the rule

Three details from CBDT Circular 15/2023 of 16 August 2023 settle how the ₹5 lakh ceiling is applied. Policies issued before 1 April 2023 are not counted towards the ceiling for later policies. The premium is tested without GST. And where several post-April 2023 policies together exceed the ceiling, the taxpayer may choose which of them to treat as exempt, up to the ceiling, with the rest taxed; the circular gives worked examples. The same approach applies to ULIPs under the 2021 provisos.

How the taxable amount is computed

For a non-ULIP policy outside the exemption, slab rate (Rule 11UACA).">section 56(2)(xiii) charges the sum received, less the aggregate of premiums paid during the term that have not already been claimed as a deduction, as income from other sources. Rule 11UACA, notified with the circular, sets the arithmetic: in the year of first receipt, the taxable amount is the receipt less all premiums paid to that date; for later receipts, the receipt less the premiums paid since the last receipt. The rate is your slab rate, which in the new regime with surcharge and cess reaches about 39% for the highest incomes. There is no indexation and no 12.5% long-term rate, because the receipt is not a capital gain.

For a ULIP outside the exemption, section 45(1B) treats the receipt as a capital gain and Rule 8AD computes it as the amount received less the aggregate premiums; the Finance Act 2025 memorandum confirmed that an equity-oriented ULIP is an equity-oriented fund, so long-term gains above ₹1.25 lakh are taxed at 12.5% and short-term gains at 20%, on current rates. That difference between a ULIP-type policy and other policies matters for a foreign policy too: whether an offshore unit-linked policy counts as a ULIP for section 45(1B), or as any other policy for section 56(2)(xiii), is a classification question on which we have found no CBDT view, and the two answers give very different rates.

Tax deducted at source follows the same line. Section 194DA requires the insurer to deduct TDS on the income component of a non-exempt payout, reported as 2% from 1 October 2024 for payouts above ₹1 lakh. A foreign insurer does not deduct Indian TDS, so the whole liability is settled through advance tax and the return.

A worked example on the ULIP ceiling

A resident takes a ULIP in 2026 at ₹3,00,000 a year for ten years, ₹30 lakh in all, and the fund is worth ₹48 lakh after the tenth year. The premium was above ₹2.5 lakh, so the ₹18 lakh gain is outside section 10(10D). If the fund is equity-oriented and held over a year, with no other long-term equity gains that year, the tax is about (₹18,00,000 less ₹1,25,000) at 12.5%, roughly ₹2,09,375, plus surcharge and cess. The same arithmetic on a ₹10 crore family is the subject of PPLI vs ULIP: dividing ₹10 crore by the ₹2.5 lakh ceiling gives 400 years.

What a foreign policy gets, and what a GIFT City policy gets

Section 2(28BB) defines an insurer as an Indian insurance company registered under the Insurance Act 1938, but section 10(10D) speaks of a sum received under a life insurance policy, not under a policy from an insurer. ITAT Mumbai in Taragauri T. Doshi (2012) and ITAT Delhi in Sarvesh Naidu (August 2026) both read the exemption as covering a foreign insurer’s policy. On that reading the ceilings apply to a foreign policy exactly as to an Indian one: a PPLI policy with a premium of ₹5 crore is outside the exemption on surrender, and inside it on death. The practical treatment of a large foreign policy, with figures, is on how India taxes a foreign life insurance policy.

A policy issued by an IFSC Insurance Office in GIFT City is the exception written into the eighth proviso by the Finance Act 2025: proceeds from 1 April 2025 are exempt without the maximum-premium condition, a change the Budget memorandum described as parity for non-residents. The 10% ratio test and the other conditions of the section remain. What that means next to an offshore policy and a domestic ULIP is on GIFT City life insurance.

The death benefit stays exempt

The eighth proviso keeps the sum received on the death of a person outside every premium ceiling. A policy with a ₹20 crore premium pays its death benefit to the nominee without income tax, and India has had no estate duty since 1985 and no inheritance tax. That is the one complete income-tax benefit of a large life policy in India, and the reason the policy is a plan for passing wealth on rather than a plan for cash. How the proceeds reach the family, and what a nominee is, are on estate planning in India with a life policy; why there is no estate duty, and what exists instead, on inheritance tax in India.

Sources and authorities

• Income-tax Act 1961, section 10, clause (10D): sub-clauses (c) and (d), fourth to eighth provisos; sections 45(1B), 56(2)(xiii), 112A, 194DA; Rules 8AD and 11UACA.
• EY India on CBDT Circular 15/2023 (secondary): aggregation, GST exclusion, choice of exempt policies, worked examples.
• Memorandum explaining the provisions of the Finance Bill, 2025: ULIPs above the ceiling as equity-oriented funds; IFSC insurance intermediary office policies.
• Business Standard, August 2023, on the circular and February 2025, on ULIPs after the Budget (press).
• ITAT Mumbai, Taragauri T. Doshi v ITO, ITA 549/Mum/2010 (12 March 2012); ITAT Delhi, Sarvesh Naidu v DDIT (Inv.)-1, AY 2017-18: reported decision, order text not yet public.