Life-insurance maturity is not automatically tax-free. Section 10(10D) contains conditions and premium thresholds, including the ₹5 lakh aggregate-premium regime for certain non-ULIP policies issued on or after the specified date, while death benefits retain separate protection under the provision. The policy issue date and annual premium history are therefore essential.
At a glance
Classify the policy as ULIP or non-ULIP.
Applying the ₹5 lakh rule to policies issued before 1 April 2023 without checking the issue date.
Policy issue date and annual premium schedule
Rules
| Control |
|---|
| Post-1 April 2023 non-ULIP life policies can lose maturity exemption where aggregate premium conditions are breached, subject to statutory exceptions. |
| Death benefits remain subject to the separate statutory protection rather than the high-premium maturity rule. |
| Policy issue date and aggregate premium across relevant policies should be reviewed. |
| Taxable maturity proceeds and TDS, if any, should reconcile with the return. |
For covered non-ULIP life policies issued on or after 1 April 2023, the ₹5 lakh premium threshold framework can determine whether maturity proceeds remain exempt, subject to the statutory aggregation rules.
The threshold tests annual premium and can aggregate multiple policies; splitting premium across policies does not necessarily preserve exemption.
Death proceeds receive separate treatment under Section 10(10D), so a policy failing the maturity-premium threshold should not automatically be assumed taxable on death.
Older policy cohorts and ULIPs have their own issue-date/premium rules; the 2023 non-ULIP threshold should not be retrofitted to every contract.
If maturity is taxable, the entire bank credit is not necessarily taxable profit; the computational provision for receipts/premiums must be applied.
TDS, if any, is only a collection mechanism and should be reconciled to the final return treatment.
Keep premium receipts for every year and every policy that may need aggregation, especially when high-value policies mature years later.
The ₹5 lakh test applies to selected post-April-2023 non-ULIP policies, not every life policy
CBDT Circular 15/2023 explains the special maturity exemption restriction for life-insurance policies other than ULIPs issued on or after 1 April 2023. If the premium payable for any year during the policy term exceeds ₹5 lakh, the maturity or surrender receipt does not qualify for the section 10(10D) exemption under that threshold rule. Policies issued before 1 April 2023 are outside this particular premium-limit proviso, though the other section 10(10D) conditions still matter.
Multiple eligible post-2023 policies require aggregation. The taxpayer can identify policies for which the aggregate premium stays within ₹5 lakh in every relevant year and claim exemption on that qualifying set, subject to the other conditions. CBDT’s examples show that the most beneficial qualifying combination can matter when several policies mature in different years.
Death benefit is carved out from the ₹5 lakh premium restriction. The sixth and seventh provisos do not apply to a sum received on the death of the insured person. That does not mean every non-death receipt is taxed on the entire cheque; where exemption is unavailable, the tax computation should identify the income element under the applicable provisions rather than simply treating premiums returned as fresh income.
The taxpayer should also separate ULIPs from traditional/non-ULIP policies because the ₹2.5 lakh ULIP framework has its own rules. Mixing the two premium thresholds in one worksheet is a common source of incorrect exemption claims.
| Situation | How to handle it |
|---|---|
| Traditional policy issued 1 April 2023 with annual premium ₹6 lakh | The new ₹5 lakh premium condition can deny maturity exemption; death receipt remains separately protected. |
| Two post-2023 policies with annual premiums ₹3 lakh and ₹2 lakh | Aggregate remains ₹5 lakh; test other section 10(10D) conditions and the policy combination rules. |
| Policy issued in 2022 with ₹6 lakh annual premium | The 2023 premium-limit proviso does not apply merely because the maturity occurs later; older section 10(10D) conditions still require review. |
Worked example 1
A taxpayer buys two eligible non-ULIP policies after 1 April 2023 with annual premiums of ₹3.2 lakh and ₹2.4 lakh. Looking at each policy separately would suggest both are under ₹5 lakh, but the aggregation rule must be tested because total annual premium is ₹5.6 lakh. The taxpayer should identify which policy/proceeds can satisfy the exemption framework and preserve premium history rather than waiting until maturity to reconstruct it.
Worked example 2
A taxpayer buys Policy A in May 2023 for ₹3.5 lakh annual premium and Policy B in June 2024 for ₹3 lakh. Both later mature. Because the combined annual premium overlaps above ₹5 lakh, exemption cannot automatically be claimed on both. The taxpayer should use the CBDT aggregation examples to identify the qualifying set, preserve premium schedules and compute the taxable income element for any non-exempt receipt. If the insured had died instead, the ₹5 lakh provisos would not deny the death-benefit exemption.
Mistakes
- Applying the ₹5 lakh rule to policies issued before 1 April 2023 without checking the issue date.
- Ignoring premium aggregation across qualifying post-2023 non-ULIP policies.
- Confusing the ₹5 lakh traditional-policy rule with the separate ULIP premium framework.
- Treating the full non-exempt maturity cheque as taxable income without computing the prescribed income element.
Action steps
- Classify the policy as ULIP or non-ULIP.
- Record issue date and yearly premium obligation.
- For post-1-April-2023 non-ULIPs, test the ₹5 lakh single/aggregate condition.
- Keep death receipts separate from maturity/surrender analysis.
- Compute the taxable income element for any non-exempt receipt.
- Report the receipt consistently with insurer/TDS information in the return.
Documents
- Policy issue date and annual premium schedule
- Premium-paid receipts for overlapping policy years
- Maturity/surrender statement and insurer tax certificate
- Working showing which policy combination is claimed exempt
FAQs
Does the ₹5 lakh limit apply to every life-insurance policy?
No. The special rule targets non-ULIP policies issued on or after 1 April 2023; older policies and ULIPs have different rule sets.
What if I hold several post-2023 policies?
The aggregate premium of the policies selected for exemption must satisfy the ₹5 lakh condition for the relevant overlapping years, subject to the CBDT rules.
Is a death benefit affected by the ₹5 lakh premium limit?
The special sixth/seventh provisos do not apply to a sum received on death of the insured person.
If exemption fails, is the full maturity value taxable?
The taxable income should be computed under the applicable provisions; do not automatically treat returned premiums as entirely taxable income.
Sources
- Income Tax Department — Income-tax Act, 2025
- IRDAI — Master Circular on Life Insurance Products
- CBDT — Circular 15/2023 on section 10(10D)
Educational reference. Verify current official sources and facts.