CBDT’s Directive on Clause (10D) Amendments: Circular No. 15

Circular No. 15 of 2023, issued by the Government of India’s Ministry of Finance, provides guidelines regarding amendments made to clause (10D) of section 10 of the Income-tax Act, 1961, through the Finance Act, 2023. This clause pertains to the income tax exemption on sums received under life insurance policies, including bonuses, subject to certain conditions. The circular outlines changes introduced by the Finance Act, including amendments to the provisos and the introduction of new clauses. Notably, the circular introduces the concept of “eligible life insurance policies” issued after April 1, 2023, and explains how the exemption under clause (10D) should be determined based on the premium amounts and considerations received.

Guidelines under clause (10D) of section 10 of the Income-tax Act, 1961

Circular No. 15 of 2023

F. No.370142/28/2023-TPL
Government of India
Ministry of Finance
Department of Revenue
(Central Board of Direct Taxes)

Dated the 16th August, 2023

Sub: Guidelines under clause (10D) of section 10 of the Income-tax Act, 1961 – reg.

Clause (10D) of section 10 of the Income-tax Act, 1961 (the Act) provides for income-tax exemption on any sum received under a life insurance policy, including the sum allocated by way of bonus on such policy subject to certain exclusions.

2. The Finance Act, 2023 (Finance Act), inter-alia,-

I. amended clause (10D) of section 10 of the Act by substituting the existing sixth proviso with the new sixth, seventh and eighth provisos to, infer-alia, provide that:

(i) with effect from assessment year 2024-25, the sum received under a life insurance policy, other than a unit linked insurance policy, issued on or after the 1 day of April, 2023, shall not be exempt under the said clause if the amount of premium payable for any of the previous years during the term of such policy exceeds Rs 5,00,000 [sixth proviso];

(ii) if premium is payable for more than one life insurance policy, other than a unit linked insurance policy, issued on or after 01.04.2023, the exemption under the said clause shall be available only with respect to such policies where the aggregate premium does not exceed Rs 5,00,000 for any of the previous years during the term of any of those policies [seventh proviso];

(iii) the sixth and seventh provisos shall not apply in case of any sum received on the death of a person [eighth proviso]

II. inserted a new clause (xiil) in sub-section (2) of section 56 to provide that where any sum is received, including the amount allocated by way of bonus, at any time during a previous year, under a life insurance policy, other than the sum,-

a. received under a unit linked insurance policy, or
b. being the income referred to in clause (iv) of sub-section 2,

which is not to be excluded from the total income of the previous year in accordance with the provisions of clause (10D) of section 10, the sum so received as exceeds the aggregate of the premium paid, during the term of such life insurance policy, and not claimed as deduction in any other provision of the Act, computed in the manner as may be prescribed shall be chargeable to income-tax under the head “Income from other sources”;

III. inserted a sub-clause (xviid) in clause (24) of section 2 to provide that income shall include any sum referred to in clause (xiii) of sub-section (2) of section 56.

2.1. -‘It may be noted that Finance Act, 2021 had earlier inserted, fourth to seventh provisos in clause (10D) of section 10 to provide that the sum received under any unit linked insurance policy [ULIP] (except any such sum received on the death of a person), issued on or after the 01.02.2021 shall not be exempt under said clause, if the amount of premium payable for any of the previous years during the term of such policy exceeds Rs 2,50,000 (fourth proviso). It was also provided that if the premium is payable for more than one ULIPs, issued on or after the 01.02.2021, the exemption under the said clause shall be available only with respect to such policies where the aggregate premium does not exceed Rs 2,50,000 for any of the previous years during the term of any of the policies (fifth proviso).

Issuance of Guidelines for removal of difficulties

3. Ninth proviso to clause (10D) of section 10 of the Act also empowers the Central Board of Direct Taxes (Board) to issue guidelines, with the previous approval of the Central Government, in order to remove any difficulty which arises while giving effect to the provisions of the said clause. In exercise of the powers under this proviso, Board, with the previous approval of the Central Government, hereby issues the following guidelines.

Guidelines

4. In these guidelines:-

(i) “eligible life insurance policy” means any life insurance policy (other than unit linked insurance policy) issued on or after 01.04.2023;

(ii) “consideration” means sum received (of any nature including bonus) under an eligible life insurance policy

(ii)“current previous year” means the previous year in which consideration is received and its taxability is being examined.

4.1. Consideration received during the previous year under an eligible life insurance policy shall be exempt or not exempt under clause (10D) of section 10 of the Act, subject to the satisfaction of other provisions of said clause. The same are explained by way of examples of different situations:-

4.2 Situation 1: No consideration is received by the assessee on any eligible life insurance policies during any previous year preceding the current previous year or consideration has been received on such eligible life insurance policies but has not been claimed exempt. The exemption under clause (10D) of section 10 of the Act shall be determined as under:

• If the assessee has received consideration, during the current previous year, under one eligible life insurance policy only and the amount of premium payable on such eligible life insurance policy does not exceed Rs 5,00,000 for any of the previous years during the term of such eligible life insurance policy, such consideration shall be eligible for exemption under the said clause (10D) subject to fulfilment of other conditions;
• If the assessee has received consideration, during the current previous year, under one eligible life insurance policy only and the amount of premium payable on such eligible life insurance policy exceeds Rs 5,00,000 for any of the previous years during the term of such eligible life insurance policy, such consideration shall not be eligible for exemption under the said clause (10D);
• If the assessee has received consideration, during the current previous year, under more than one eligible life insurance policies and the aggregate of the amount of premium payable on such eligible life insurance policies does not exceed Rs 5,00,000 for any of the previous years during the term of such eligible life insurance policies, such consideration shall be eligible for exemption under the said clause (10D) subject to fulfilment of other conditions;
• If the assessee has received consideration, during the current previous year, under more than one eligible life insurance policies and the aggregate of the amount of premium payable on such eligible life insurance policies exceeds Rs 5,00,000 for any of the previous years during the term of such eligible life insurance policies, the consideration under only such eligible life insurance policies shall be eligible for exemption under the said clause (10D) where aggregate of the amount of the premium payable does not exceed Rs 5,00,000 for any of the previous years during their term (Refer Examples) subject to fulfilment of other conditions.

4.3 Situation 2: Consideration has been received by the assessee under any one or more eligible life insurance policies during any previous year preceding the current previous year and it has been claimed exempt under clause (10D) of section 10 of the Act. Such eligible life insurance policies are referred as “old eligible life insurance policies” in this paragraph and corresponding examples and reference to eligible life insurance policies in this paragraph and corresponding examples shall not include old eligible life insurance policies. The exemption under clause (10D) of section 10 of the Act shall be determined as under:

• If the assessee has received consideration, during the current previous year, under one eligible life insurance policy only and aggregate amount of premium payable on such eligible life insurance policy and old eligible life insurance policies does not exceed Rs 5,00,000 for any of the previous year during the term of such eligible life insurance policy, the consideration under such eligible life insurance policy shall be eligible for exemption under the said clause (10D) provided it is not excluded under sub-clauses (a) to (d) of said clause (10D);
• If the assessee has received consideration, during the current previous year, under one eligible life insurance policy only and aggregate amount of premium payable on such eligible life insurance policy and old eligible life insurance policies exceeds Rs. 5,00,000 for any of the previous year during the term of such eligible life insurance policy, the consideration under such eligible life insurance policy shall not be eligible for exemption under the said clause (10D);
• If the assessee has received consideration, during the current previous year, under more than one eligible life insurance policies and aggregate of the amount of premium payable on such eligible life insurance policies and old eligible life insurance policies does not exceeds Rs 5,00,000 for any of the previous years during the term of such eligible life insurance policies, such consideration shall be eligible for exemption under the said clause (10D) provided it is not excluded under sub-clauses (a) to (d) of said clause (10D);
• If the assessee has received consideration, during the current previous year, under more than one eligible life insurance policies and aggregate of the amount of premium payable on such eligible life insurance policies and old eligible life insurance policies exceeds Rs 5,00,000 for any of the previous years during the term of such eligible life insurance policies, consideration under only such eligible life insurance policies shall be eligible for exemption under the said clause (10D) where aggregate amount of premium along with the aggregate amount of premium of old eligible life insurance policies does not exceed Rs 5,00,000 for any of the previous years during the term of any of such eligible life insurance policies (Refer examples) provided it is not excluded under sub-clauses (a) to (d) of said clause (10D).

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