Exemptions

38.27 AMOUNT PAID ON LIFE INSURANCE POLICIES SEC10[10D]- The table given below highlights the provisions of section10(10D)

Nature of policy	Annual premium payable as a percentage of actual capital sun assured	whether exemption is available under section 10(10D)
1.any sum received under section 80DD(3)	-	Exemption not available
2.Keyman insurance policy	-	Exemption not available.[see para 38.27-1]
3.Any other policy (sum received on the death a person)	-	Exemption available,nothing is chargeable to tax
4.Any other policy [not being the case when sum received on the death of a person and not being a unit linked insurance policy (ULIP)given i para 38.27-2]	-	Exemption available,nothing is charge able to tax
4.1 policy issued before April 1,2003	20%	Exemption available only when annual premium payable is not more than 20%of sum assured
4.3 Policy issued during 2012-13	10%	Exemption available only when annual premium payable is not more than 10%of sum assured
4.4 Policy issued on or after April 1,2013	10%/15%	Exemption available only when annual premium payable is not more than 10%/15%of sum assured
4.5 Unit-linked insurance policy issued on or after February 1,2021	-	Exemption available only when annual premium payable for Any of the previous year during the term of the policy does not exceed Rs.2,50,000

Note- 1.For the purpose of points 4.2,4.3and4.4 the value of any premium agreed to be returned or bonus which is to be received under the policy shall not be taken into account to calculate"actual capital sum assured",

2.For the purpose of points 4.3 and 4.4"actual capital sum assured"in relation to a life insurance policy shall mean the minimum amount assured under the policy on happening of the insured event at any time during the term of the policy.

3.If policy is issued or after April 1,2013,15 per cent is applicable in the case of a policy on the life of any person who is-

a.a person with disability or a person with server disability as referred to in section 80U;or

b.suffering from disease or ailment as specified in the rules made under section 80DDB.

38.27-1Keyman insurance policyThe existing provision of section 10(10D),inter alai exempt any sum received under a life insurance policy (as given in table supra)other than a keyman insurance policy.For the purpose a keyman insurance policy,means a life insurance policy taken by a person on the life of another person who is or was the employee of the first mentioned person or is or was connected in any manner whatsoever with business of the first-mentioned person

A keyman insurance policy may be assigned to the keyman before its maturity.After assignment insurance premium is paid by the keyman and the policy become an ordinary life insurance policy At the time of maturity,the exemption of section 10(10D) is available if annual premium does not exceed the limits given in the table(supra).In CIT v. Rajan Nanda [2012]205 Taxman 138,the Delhi High court held that once there is an assignment of keyman insurance policy by an employer company to its employee,insurance policy gets converted into an ordinary policy and in that case maturity value received by an employee would not be subjected to tax in view of exemption under section 10(10D).

To supersede the aforesaid ruling,section 10(10D) was amended by the Finance Act,2013,with effect from the assessment year2014-15 The amended provisions provide that a keyman insurance policy which has been assigned ti any person during its term with or without consideration shall continue to be treated as a keyman insurance policy.

38.27-2 unit-linked insurance plan(ULIP)-The provisions given in this para are applicable only in the case of ULIPs. To put it differently,these provisions are not applicable if an insurance policy is not ULIP.ULIP has been defined for this purpose as a life insurance policy which has components of both investment and insurance and is linked to a unit (i.e,a specific portion or part of the underlying segregated unit-linked fund which is representative of the policyholder'sentitlement under such funds).

Fourth proviso to section10(10D)-Fourth proviso provides that the exemption under section 10(10D) shall not apply with respect to any ULIP,issued on or after February 1,2021,if the amount of premium payable for any of the previous year during the turm of the policy exceeds RS.2,50,00.

Fourth proviso to section 10(10D)-Fifth proviso provides that if premium is payable by a person for more than one ULIP,issued on or ofter February 1,2021,exemption under section 10(10D)shall be available only with respect to such policies aggregated premium where of does not exceed the amount of Rs.2,50,000 for the previous years during the terms of any of the policy

Sixth proviso to section 10(10D)-IT provides that even if annual ULIP premium is more than RS.2,50,000,exemption will not be denied if insurance money is received on the death of person.

Guidelines by CBDT-seventh proviso empower CBDT to issue Guidelines (with the approval of central Government) for the purpose of removing any difficulty and ti lay every guidelines issued by the Board before each House of parliament and to make it binding on the income-tax authorities and the assessee.

Tax liability on redemption of ULIP-If the exemption under section 10(10D)is not available (only because of fourth or fifth proviso), income would be taxable under section 45(1B) under the head "capital gain"and tax liability will be calculated as per section 112A.If,however,exemption is not available in the case of ULIP (i.e,not only because of fourth/fifth proviso but because of insurance premium being more than 10 per cent of sum assured),income would be taxable under section 45(1)under the head "capital gain"and tax liability will be calculated as per section 112.

38.27-P1 X takes a unit-linked insurance plan march 6,2021[information pertaining to sum assured and annual insurance premium is given in table.He wants to know whether exemption will be available underSection 10(10D) at the time of maturity of ULIP.He does not have any other policy and does not inferred to take Any other ULIP in future.

Nature of policy	percentage of actual capital sum assured	whether exemption is available under section 10(10D)
1.any sum received under section 80DD(3)	-	Exemption not available
2.Keyman insurance policy	-	Exemption not available.[see para 38.27-1]
3.Any other policy (sum received on the death a person)	-	Exemption available,nothing is chargeable to tax
4.Any other policy [not being the case when sum received on the death of a person and not being a unit linked insurance policy (ULIP)given i para 38.27-2]	-	Exemption available,nothing is charge able to tax
4.1 policy issued before April 1,2003	20%	Exemption available only when annual premium payable is not more than 20%of sum assured
4.3 Policy issued during 2012-13	10%	Exemption available only when annual premium payable is not more than 10%of sum assured
4.4 Policy issued on or after April 1,2013	10%/15%	Exemption available only when annual premium payable is not more than 10%/15%of sum assured
4.5 Unit-linked insurance policy issued on or after February 1,2021	-	Exemption available only when annual premium payable for Any of the previous year during the term of the policy does not exceed Rs.2,50,000

For the purpose of points 4.2, 4.3 and 4.4 the value of any premium agreed to be returned or bonus which is to be received under the policy shall not be taken into account to calculate" actual capital sum assured",

For the purpose of points 4.3 and 4.4"actual capital sum assured"in relation to a life insurance policy shall mean the minimum amount assured under the policy on happening of the insured event at any time during the term of the policy.

If policy is issued or after April 1,2013,15 per cent is applicable in the case of a policy on the life of any person who is-

person with disability or a person with server disability as referred to in section 80U;or
suffering from disease or ailment as specified in the rules made under section 80DDB.

38.27-1Keyman insurance policyThe existing provision of section 10(10D),inter alai exempt any sum received under a life insurance policy (as given in table supra)other than a keyman insurance policy. For the purpose a keyman insurance policy, means a life life insurance policy taken by a person on the life of another person who is or was the employee of the first mentioned person or is or was connected in any manner whatsoever with business of the first-mentioned person

A keyman insurance policy may be assigned to the keyman before its maturity.After assignment insurance premium is paid by the keyman and the policy become an ordinary life insurance policy At the time of maturity,the exemption of section 10(10D) is available if annual premium does not exceed the limits given in the table(supra).In CITv.Rajan Nanda [2012]205 Taxman 138,the Delhi Highcourt held that once there is an assignment of keyman insurance policy by an employer company to its employee,insurance policy gets converted into an ordinary policy and in that case maturity value received by an employee would not be subjected to tax in view of exemption under section 10(10D).

To supered the aforesaid ruling,section 10(10D) was amended by the Finance Act,2013,with effect from the assessment year2014-15 The amended provisions provide that a keyman insurance policy which has been assigned ti any person during its term with or without consideration shall continue to be treated as a keyman insurance policy.

38.27-2 unit-linked insurance plan(ULIP)-The provisions given in this para are applicable only in the case of ULIPs. To put it differently,these provisions are not applicable if an insurance policy is not ULIP.ULIP has been defined for this purpose as a life insurance policy which has components of both investment and insurance and is linked to a unit (i,e,a specific portion or part of the underlying segregated unit-linked fund which is representative of the policyholder'sentitlement under such funds).

Fifth proviso to section 10(10D)-Fifth proviso provides that if premium is payable by a person for more than one ULIP,issued on or ofter February 1,2021,exemption under section 10(10D)shall be available only with respect to such policies aggregated premium where of does not exceed the amount of Rs.2,50,000 for the previous years during the terms of any of the policy

Sixth proviso to section 10(10D)-IT provides that even if annual ULIP premium is more than RS.2,50,000,exemption will not be denied if insurance money is received on the death of person.

Tax liability on redemption of ULIP-If the exemption under section 10(10D)is not available (only because of fourth or fifth proviso),income would be taxable under section 45(1B) under the head "capital gain"and tax liability will be calculated as per section 112A.If,however,exemption is not available in the case of ULIP (i.e,not only because of fourth/fifth proviso but because of insurance premium being more than 10 per cent of sum assured),income would be taxable under section 45(1)under the head "capital gain"and tax liability will be calculated as per section 112.

	Situation1	Situation2	Situation3	Situation4
sum assured	30	15	30	25
Annual insurance premium	2.40	2	2.6	2.6

SOLUTION

Situation 1-As the annual insurance premium does not exceed 10% of sum assured and annual insurance premium is not more than Rs.2,50,000,section 10(10D) exemption will be available at the time of maturity of ULIP.

Situation 2-Annual insurance premium does not exceed RS.2,50,000 Consequently,fourth proviso or fifth proviso to section 10(10D)as given above is not applicable.In other words exemption in this case cannot be denied on the basis of fourth proviso or fifth proviso.In situation,section 45(1B)and section 112A are not applicable.

As annual insurance premium is more than 10% of sum assured,exemption is not available by virtue of section 10(10D)(d).Capital gain will be chargeable to tax under section 45 and tax liability shall be calculated within the parameters of section 112.

Situation 3-Annual insurance premium does not exceed 10% of sum assured Exemption cannot be denied because of operation of section 10(10D)(d).However,annual Insurance premium is more than Rs.2,50,000.consequently,by virtue of fourth and fifth proviso to section 10(10),X cannot claim Exemption.Capital gain will be taxable under section45(1B) and tax will be computed within the parameters of section 112A.

Situation 4-Annual insurance premium exceed 10% of sum assured Exemption is not available by virtue of section 10(10D)d.Moreover,annual premium is more than Rs.2,50,000.However,in the case,exemption is denied not only because of fourth and fifth proviso.In such a case capital gain will be chargeable to tax under section 45 and tax liability shall be calculated within the parameters of section 112.

Document in Progress.

Tax treatment -The table given below highlights the exemption and deduction available to respect of Contributions to and payment from various provident funds (in the case of salaries employees):

	statutory provident fund	recognized provident Fund	unrecognized provident fund	public provident fund
1	2	3	4	5
Employer's contribution to provident fund	Exempt from tax	excess of employer's contribution over 12 per cent of salary is taxable[see note 1].moreover,employer's contribution in excess of Rs.7,50,000 per annum is taxable [see para 52.22]available	Exemption from tax	employer does not contributes
Deduction under section 80C on employee's contribution[see para235]	Available	Available	Not available	Available
Interest credited to provident fund	Exempt from tax[however taxable in a few cases-see note6]	Exempt from tax if rate of interest does not exceed 9.5 per cent see note 5[how ever,taxable in a few cases-see note 6]	Exempt	Exempt from tax
Lump sum payment at the time of retirement or termination of service	Exempt from tax under section 10(11)	exempt from tax under section10(12),however,in some cases,provident fund is treated as an un recognized fund from the beginning [see notes 2 and 3]	see note 3	Exempt from tax

NOte:

1."salary" here means basic salary.It includes dearness allowance and dearness pay.If terms of employment so provide It also includes commission where commission is determined at a fixed percentage of turnover by an employee,then such commission would partake of a character of salary-Gestetner Duplicators tax v.CiT[1979]1 taxman 1/117 ITR 1(sc).

2.accumulated balance payable to an employer participating in a recognized provident funds shall be exempt in the hands of employee in the following situation-

If the employee has rendered continue service with his employer for a period of 5 years or more For the purpose of calculating 5 year time limit,service rendered with the previous employer shall be included,if the previous employer also maintained recognized provident fund and the provident fund balance of the employee was transferred by him to the current employer.

If the employee has been terminated because of certain reason which beyond his control (e.g, ill health of the employee, discontinuation of business by employer,complicating of project for which the employee was employed etc.)

If the employee has resigned before completion of 5 years but he joins another employer (who maintains recognized provident fund and provident fund money with the current employer is transferred to the new employer).

If the entire balance standing to the credit of the employee is transferred to his account underbar pension scheme referred to in section 80CCD and notified by the central Government (i,e,NPS)

3.Lump sump payment received from unrecognized provident fund at the time of retirement/termination shall be taxable as follows

payment received in respect of employer's contribution and interest theron is taxable under the head "salaries"-

payment received in respect of interest on employees contribution is taxable under the head "income from other section source"-- CIT v.G.Hyatt[1971] 80 ITR 177(sc).

payment received in respect of employees contribution is not chargeable to tax.

4.If the ambulated balance becomes table due to non-fulfillment of the aforesaid condition the total income of the employee will be recomputed by the assessing officer,as if the funds was not recognized from the beginning.

5.Interest credited to recognized provident fund is exempt from tax if rate of interest does not exceed the notified rate given below.

Date of credit interest (both days inclusive)	Notified rate(per cent)
Between june 18,1985 and march 31,1986	10.5
Between April 1,1986 and march 31,2001	12
on or after April 1,2001	9.5

With effect from the assessment year 2022-23,the provisions of section 10(11)(12)have been amended to provide that these exemption shall not apply to the interest income accrued during the previous year in the provident fund account of the employee to the extent is relates to the amount (or the aggregate of amounts)contribution made by such person exceeding RS.2.50 lakhs in a previous year in that funds,on or after April1,2021,computed in such manner as is given rule 9D.