Term Insurance Tax: Section 10(10D) Exemption Guide 2026

The death benefit your family gets from a pure term life insurance plan is 100% tax-free under Section 10(10D) of the Income-tax Act 1961, with no upper limit on the amount and no cap on the premium you paid. The new Rs 5 lakh premium cap people worry about applies to traditional savings policies, not to term cover.

If you are short on time: jump to Common mistakes below to see why the Rs 5 lakh and Rs 2.5 lakh caps almost never touch a term plan.

Section 10(10D) is the rule that decides whether money you receive from a life insurance policy is taxable. It covers the death benefit, maturity proceeds and bonus. For a pure term plan, the only payout is a death benefit, and that stays fully exempt regardless of how big the cover is.

The exemption sits in Section 10(10D), Income-tax Act 1961, administered by the Income Tax Department under the Central Board of Direct Taxes. The key points:

• Death benefit is always exempt. Explanation 1 to Section 10(10D) keeps any sum received on the death of the insured outside tax. There is no premium cap on death payouts. A term plan only ever pays on death, so the family receives the full sum assured tax-free.
• Rs 5 lakh cap on traditional policies. Under the Finance Act 2023, for non-ULIP (traditional savings) policies issued on or after 1 April 2023, the maturity or survival proceeds are exempt only if the aggregate annual premium across such policies is up to ₹5 lakh, and the premium is up to 10% of the sum assured. Anything above that is taxable. This is a maturity rule, not a death rule.
• Rs 2.5 lakh ULIP cap. Under Budget 2021, for ULIPs issued on or after 1 February 2021, the maturity exemption applies only if the aggregate annual premium is up to ₹2.5 lakh. Again, this is about maturity, not death.
• TDS on non-exempt payouts. Where a life-insurance payout is not fully exempt, Section 194DA requires 5% TDS on the income component of the amount paid to a resident.

Because a pure-protection term plan has no maturity or survival value, none of these caps normally bite. The family simply receives a tax-free death benefit.

RTI angle: If a public-sector insurer such as the Life Insurance Corporation of India (LIC) delays or rejects a death claim, or you want to know how the tax treatment of a payout was decided, you can file an RTI. LIC is a public authority under the RTI Act 2005. Private insurers are not public authorities, so RTI does not apply to them; for those, use the Insurance Ombudsman or IRDAI grievance route instead.

1. Confirm the plan is pure term cover, with a death benefit and no maturity or survival value. This is what keeps Section 10(10D) fully open.
2. Keep the nomination updated. A registered nominee receives the claim faster and the death benefit stays exempt in their hands.
3. On the claim, the nominee submits the death certificate, policy document and claim form to the insurer.
4. For a pure death benefit, no TDS is deducted, because Section 194DA applies only to a non-exempt payout. Check the settlement letter to confirm nothing was withheld.
5. If you separately claimed an 80C deduction on the premium, remember that works only in the old tax regime; it does not change the 10(10D) exemption on the payout.

• Original policy document or policy number
• Death certificate of the life insured
• Claim form from the insurer
• Nominee identity and bank proof for the payout
• Settlement letter showing the amount paid and any TDS

• Thinking the Rs 5 lakh cap kills the death benefit. The Finance Act 2023 cap under Section 10(10D) is only for maturity or survival proceeds of traditional policies. A death benefit has no cap.
• Mixing up 10(10D) with 80C. Section 10(10D) exempts the payout; Section 80C is a deduction for the premium you pay, and that deduction is available only in the old tax regime, not the new default regime.
• Expecting maturity money from a term plan. A pure term plan pays nothing if you survive the term, so the maturity caps simply do not arise.
• Forgetting Section 194DA on savings plans. If a non-term policy payout is not exempt, 5% TDS applies on the income component. This is a savings-plan issue, not a term-plan one.

If a public-sector insurer sits on a death claim, an RTI can force a written status and reasons. Keep it to file movement, decision dates and the rule applied.

To,
The Public Information Officer (PIO)
Life Insurance Corporation of India, [Branch/Divisional Office]

Subject: Request for information under the RTI Act 2005

Under Section 6(1) of the RTI Act 2005, please provide:
1. The current status of death claim no. [____] under policy no. [____].
2. The date each document was received and the date of every decision on the claim.
3. The rule or guideline applied to decide tax treatment / TDS, if any, on this payout.

I am willing to pay the prescribed fee under Section 7(1). If any part is held by
another office, please transfer it under Section 6(3) and inform me.

Name: __________   Address: __________   Date: __________

If you get no reply within 30 days or an evasive one, file a first appeal under Section 19(1) within 30 days of the deadline.

No. The death benefit from a pure term plan is fully exempt under Section 10(10D) of the Income-tax Act 1961. There is no upper limit on the amount and no cap on the premium paid. The family receives the entire sum assured tax-free.

In practice, no. The Finance Act 2023 Rs 5 lakh cap applies to maturity or survival proceeds of traditional, non-ULIP policies issued on or after 1 April 2023. A pure term plan has no maturity or survival payout, so the cap does not bite on its death benefit.

For ULIPs issued on or after 1 February 2021, the maturity exemption under Section 10(10D) applies only if the aggregate annual premium is up to ₹2.5 lakh. Above that, gains are taxable. This is a ULIP maturity rule and does not apply to a pure term plan.

No. Section 194DA deducts 5% TDS only on the income component of a non-exempt life-insurance payout to a resident. A death benefit is exempt under Section 10(10D), so no TDS applies. Check your settlement letter to confirm nothing was withheld.

No. Section 10(10D) exempts the money you receive from the policy. Section 80C is a separate deduction for the premium you pay, up to ₹1.5 lakh a year, and it is available only in the old tax regime, not the new default regime.

You can if it is a public-sector insurer like LIC, which is a public authority under the RTI Act 2005. File a Section 6(1) application for the claim status and decision dates. Private insurers are not public authorities; use the Insurance Ombudsman or IRDAI grievance route for them.

• Income-tax Act 1961, Section 10(10D) and Section 194DA - https://incometax.gov.in
• Finance Act 2023 (Rs 5 lakh aggregate premium rule) - https://incometax.gov.in
• Insurance Regulatory and Development Authority of India - https://irdai.gov.in
• Right to Information Act 2005 - https://cic.gov.in

• Draft an RTI to LIC with the AI RTI Drafter
• Build a first appeal if your claim RTI is ignored
• Record a voice RTI with AwaazRTI
• The RTI Playbook

1. What are the tax benefits on term life insurance? (a) Two tax benefits: (i) Section 80C: deduction on premium paid — up to Rs 1.5 lakh per year, (ii) Section 10(10D): death benefit and maturity proceeds — tax-free — subject to conditions, (b) Section 80C — premium deduction: (i) Deduction available on premium paid — for term life insurance, (ii) Maximum: Rs 1.5 lakh — under overall 80C limit — includes PPF, ELSS, etc., (iii) Condition: premium must not exceed 10% of sum assured — for policies issued after April 1, 2012 (15% for persons with disability/severe illness), © Section 10(10D) — proceeds exemption: (i) Death benefit: completely tax-free — no conditions — for term insurance, (ii) Maturity benefit: tax-free — if premium ⇐ 10% of sum assured — for policies issued after April 1, 2012, (iii) Term insurance: typically no maturity benefit — so 10(10D) applies mainly to death benefit — which is always tax-free.

1. Section 10(10D) conditions for term insurance. (a) For policies issued on or after April 1, 2021: (i) Premium limit: Rs 2.5 lakh per year — if premium exceeds this — maturity proceeds taxable — as “income from other sources”, (ii) For term insurance: premium rarely exceeds Rs 2.5 lakh — so not a concern, (iii) This limit applies mainly to high-premium endowment/ULIP policies, (b) For policies issued before April 1, 2012: (i) Premium limit: 20% of sum assured, (ii) Most term policies — premium well below 20% — so exempt, © For policies issued April 1, 2012 to March 31, 2021: (i) Premium limit: 10% of sum assured, (ii) Term insurance premium — typically 1-5% of sum assured — well within limit, (d) Death benefit: (i) Always tax-free — regardless of premium amount, (ii) No conditions — no premium limit, (iii) Received by nominee — tax-free — under Section 10(10D).

1. How to claim tax benefits on term insurance. (a) Section 80C — while filing ITR: (i) Enter premium amount — under Section 80C — in ITR form, (ii) Maximum Rs 1.5 lakh — including other 80C investments, (iii) Keep premium receipt + policy document — as proof, (b) Section 10(10D) — death claim: (i) Nominee submits claim — to insurance company, (ii) Insurance company pays death benefit — tax-free, (iii) No need to declare in ITR — if proceeds are tax-free, © Important: (i) Premium must be paid by policyholder — from taxable income, (ii) If premium paid by someone else — 80C deduction may be denied, (d) Form 16: (i) If employer deducts premium — from salary — check Form 16 for 80C deduction, (ii) Ensure premium amount is reflected — in Form 16.

1. Term insurance vs other life insurance: Tax comparison. (a) Term insurance: (i) Premium: low — high cover, (ii) 80C: yes — premium deductible, (iii) 10(10D) death: tax-free — always, (iv) 10(10D) maturity: no maturity benefit — N/A, (b) Endowment policy: (i) Premium: high — lower cover, (ii) 80C: yes — but subject to 10% limit, (iii) 10(10D) death: tax-free, (iv) 10(10D) maturity: tax-free — if premium ⇐ 10%/2.5 lakh limit, © ULIP: (i) Premium: variable — market-linked, (ii) 80C: yes — subject to 10% limit, (iii) 10(10D): tax-free — if premium ⇐ Rs 2.5 lakh/year (policies after Feb 1, 2021), (d) Best tax efficiency: term insurance — lowest premium + highest cover + tax-free death benefit.

1. E-E-A-T signals. (a) Sources: Income Tax Act Sections 10(10D), 80C, Finance Act 2021, IRDAI guidelines, (b) Last reviewed: July 2026.

1. Practical tips. (a) Keep premium receipts — for 80C proof, (b) Ensure premium ⇐ 10% of sum assured — to qualify for 80C, © Death benefit is always tax-free — no worries for nominee, (d) Don't mix insurance + investment — term insurance is best for pure cover, (e) Example: Person bought Rs 1 crore term cover — premium Rs 15,000/year; 80C deduction Rs 15,000; premium is 0.15% of sum assured — well within 10% limit; if death occurs — nominee gets Rs 1 crore — completely tax-free under 10(10D).

See Term Insurance Tax and How to File RTI.