CBDT (Central Board of Direct Taxes) issued guidelines on the applicability of exemption under section 10(10D) of the Income Tax Act, 1961 (IT Act) for life insurance policies on August 16, 2023 vide Circular No. 15 of 2023.
The salient features of the clarifications are as follows
- The exemption under section 10(10D) will not be available for life insurance policies issued on or after April 1, 2023, if the amount of premium payable for any of the previous years during the term of the policy exceeds Rs. 5,00,000.
- The exemption will be available even if the total premium payable over the entire term of the policy does not exceed Rs. 5,00,000, provided that the premium payable in each of the previous years does not exceed Rs. 5,00,000.
- The exemption will be available for all types of life insurance policies, including traditional life insurance policies, unit-linked insurance plans (ULIPs), and endowment plans.
- The exemption will also be available for premiums paid by the employer on behalf of the employee under a group insurance plan.
The clarifications have been issued to provide clarity on the applicability of the new provisions of section 10(10D) of the IT Act. The clarifications are applicable from April 1, 2023.
Here is an example to illustrate the application of the new provisions
Suppose a person takes a life insurance policy on April 1, 2023, with a premium of Rs. 10,00,000 payable in equal annual installments of Rs. 2,50,000. In this case, the exemption under section 10(10D) will not be available, because the premium payable in the first year exceeds Rs. 5,00,000.
However, if the person takes the same policy on March 31, 2023, the exemption will be available, because the premium payable in the first year does not exceed Rs. 5,00,000.
Official copy of the circular has been attached herewith
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