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Life Insurance policies which are not term plans provide maturity and death benefits, in addition to tax advantages.
Maturity that proceed from a life insurance policy have tax exemption under Section 10(10D) if specific conditions are met.
When the annual premium does not exceed 10 per cent of the sum assured, exemption is applied. This is in accordance with the policies issued on or after April 1, 2012.
For such policies, the exemption applies only if the premium does not exceed 20 per cent of the sum assured.
Under Section 10(10D) of the Income Tax Act, the amount which is received upon the death of an insured remains tax-free.
For Ulips, that are issued after February 1, 2021 and have annual premium paid exceeding Rs 2.5 lakh, the maturity proceeds become taxable.
The maturity becomes taxable if the annual premium paid exceeds Rs 5 lakh.
For such policies issued after the mentioned date to persons with disabilities or severe illness, premium value shall remain under 15 per cent of the sum assured, otherwise it becomes taxable.
If the maturity proceeds are taxable, Section 194DA requires a two per cent TDS deduction from the income if the payout exceeds Rs 1 lakh.