10D : Life Insurance Policies of Persons with Disability

Raising the limit of percentage of eligible premium for life insurance policies of persons with disability or disease

1.  Under the provisions contained in clause (10D) of section 10 of the Income-tax Act, 1961 before amendment by the Act, any sum received under a life insurance policy, including the sum allocated by way of bonus on such policy, is exempt, subject to the condition that the premium paid for such policy does not exceed ten per cent of the actual capital sum assured‘.

2.  Similarly as per the provisions of sub-section (3A) of section 80C of the Income-tax Act,  prior to its amendment by the Act, the deduction under the said section is available in respect of any premium or other payment made on an insurance policy of up to ten per cent of the  actual capital sum assured‘.

3. The above limit of ten per cent was introduced through the Finance Act,  2012 and applies to policies issued on or after 1st April, 2012. Some insurance policies for persons with disability or suffering from specified diseases provide for an annual premium of more than ten per cent of the actual capital sum assured. Due to the limit of ten per cent, these policies are ineligible for exemption under clause (10D) of section 10 of the Income-tax Act. Moreover in such cases, the deduction under section 80C is eligible only to an extent of the premium paid up to 10 percent of the  actual capital sum
assured‘.

4. In view of the above, it has now been provided that any sum including the sum allocated by way of bonus received under an insurance policy issued on or after 01.04.2013 for the insurance on the life of any person who is

1. (i) a person with disability or a person with severe disability as referred to in section 80U, or
2. (ii) suffering from disease or ailment as specified in the rules made under section 80DDB

shall be exempt under clause (10D) of section 10 of the Income-tax Act, if the premium payable for any of the years during the term of the policy does not exceed 15 percent of the actual capital sum assured.

5.  Sub-section (3A) of section 80C of the Income-tax Act has also been amended so as to provide that the deduction under the said section on account of premium paid in respect of a policy issued on or after 01.04.2013 for insurance on the life of a person referred to in para 15.4 above shall be allowed to the extent of the premium paid but does not exceed fifteen percent. of the actual capital sum assured.

6. Applicability: – This amendment takes effect from 1st April, 2014 and will, accordingly, apply in relation to the assessment year 2014-15 and subsequent assessment years.

Download: Explanatory Notes to the Provisions of the Finance Act,
2013 (pdf,529KB)