The ITAT held that maturity proceeds from a life insurance policy are fully taxable under Section 10(10D) when the annual premium exceeds 20% of the sum assured.
Saloni Kumari | Apr 16, 2026 |
Premium Above 20%? ITAT Denies Section 10(10D) Exemption on LIC Maturity; Holds Entire Amount Taxable
The ITAT Chhattisgarh held that when the premium amount exceeds 20% of the total assured in a life insurance policy, the amount becomes entitled to taxation under Section 10(10D) of the Income Tax Act. No exemption can be claimed in such cases.
The assessee had received maturity proceeds on the SBI LIC policy amounting to Rs 14.91 lakh during the Assessment Year 2017-18. After the tax deduction of Rs 14,913 by the insurance company, the assessee received net proceeds of Rs 14,69,372. The assessee had not paid any tax on the said maturity proceeds amount. As a result, the Centralised Processing Centre (CPC) made an addition of Rs 14.69 lakh to the assessee’s income during return processing for the AY 2017-18. Thereafter, the assessee filed a rectification application under Section 154 of the Income Tax Act, which was rejected by the tax authorities.
Before the ITAT Chandigarh, the assessee explained that the total net amount received by him on the maturity of the SBI LIC policy was about Rs 11.47 lakh, while the total premiums paid by him amounted to about Rs 12 lakh, meaning there was an explicit loss of Rs 52,489. Hence, he did not pay any tax on the said amount.
When the tribunal analysed the case, it noted that the insurance policy in question was purchased by the assessee on January 02, 2012, with a total assured amount of Rs 12.31 lakh, and Rs 2.99 lakh was set as the premium, which is explicitly more than 20% of the sum assured. According to the provisions of Section 10(10D), for life insurance policies issued between April 01, 2003, and March 31, 2012, if the premium exceeds 20% of the sum assured, the maturity amount becomes taxable.
Meaning, in the present matter also, the maturity proceeds were liable to be taxed under Section 10(10D) of the Income Tax Act. In such cases, any exemption is also prohibited. Also, the premium cannot be treated as an expense for earning the maturity proceeds; it is simply the cost paid to secure life insurance. In conclusion, the tribunal dismissed the appeal.
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