Is LIC / Insurance Maturity Taxable? (2026 Rules)
Short answer: your maturity is tax-free under Section 10(10D) only if the annual premium never exceeded 10% of the sum assured[Sec 10(10D)] (20% for policies issued before April 2012) — and, for policies bought on or after 1 April 2023, only if your aggregate annual premium stays within ₹5 lakh. Fail either test and the payout is taxable, with 2% TDS cut under Section 194DA. Single-premium policies are the most common casualty. Check yours below.
Check your policy: exempt or taxable?
Maturity is taxable
Not exempt: annual premium exceeds 10% of the sum assured, so Section 10(10D) does not apply.
Taxable income (proceeds − premiums): ₹1,80,000 — taxed at your slab as income from other sources
TDS the insurer deducts (Sec 194DA @ 2%): ₹3,600
Death claims are always exempt with no premium condition. TDS applies only when proceeds are ₹1 lakh or more; TDS is not the final tax — the income is taxed at your slab in the ITR.
Section 10(10D) exemption conditions by issue date
| Policy issued | Premium ratio cap | Extra condition |
|---|---|---|
| Before 1 Apr 2012 | 20% of sum assured | None |
| 1 Apr 2012 – 31 Mar 2023 | 10% (15% for 80U/80DDB lives, post-Apr-2013) | None |
| On/after 1 Apr 2023 | 10% (15% for 80U/80DDB lives) | Aggregate annual premium ≤ ₹5 lakh across all such non-ULIP policies (Finance Act 2023) |
Death claims are always exempt. For ULIPs, a different ₹2.5 lakh test applies — see Is ULIP Taxable?
How insurance maturity tax is worked out
Three gates, by issue date: the premium-to-sum-assured ratio (20% / 10% / 15% for disability cases), the ₹5 lakh aggregate premium test for post-Apr-2023 policies, and the always-exempt death benefit rule. When exemption fails, taxable income = proceeds − total premiums paid, taxed at slab; the insurer withholds 2% TDS on that income if the payout is ₹1 lakh or more.
Worked example
Single-premium policy bought in 2016: one premium of ₹5,00,000, sum assured ₹6,25,000 (premium = 80% of SA — far above the 10% cap). Matures in 2026 at ₹8,10,000.
Taxable income = ₹8,10,000 − ₹5,00,000 = ₹3,10,000, added to income at slab. TDS cut by insurer = 2% × ₹3,10,000 = ₹6,200 (Sec 194DA). At the 30% slab the actual tax is ≈ ₹93,000 — the TDS is only a down payment, not the final bill.
Frequently Asked Questions
Is LIC maturity amount taxable?
Usually no — but only if your annual premium was within 10% of the sum assured (for policies issued on or after 1 April 2012; 20% for older policies). If the premium exceeded that ratio, the entire maturity income (proceeds minus premiums paid) is taxable at your slab rate, and the insurer deducts 2% TDS under Section 194DA.
What is the ₹5 lakh rule for insurance policies?
Finance Act 2023 added a second test: for traditional (non-ULIP) policies issued on or after 1 April 2023, if your aggregate annual premium across such policies exceeds ₹5 lakh in any year, the maturity loses the Section 10(10D) exemption even when the 10% ratio is satisfied. The income is then taxed under Section 56(2)(xiii).
Why did my insurer deduct TDS on my maturity payout?
Because your policy failed a Section 10(10D) condition. Under Section 194DA, insurers deduct TDS at 2% (reduced from 5% with effect from 1 October 2024) on the income portion — proceeds minus total premiums — when the payout is ₹1 lakh or more. The TDS is not the final tax; the income is taxed at your slab when you file.
Is the death claim from a life policy taxable?
No. Amounts received on the death of the insured are fully exempt under Section 10(10D) with no premium-ratio or ₹5 lakh condition, for both traditional policies and ULIPs.
How is the taxable amount calculated if my policy is not exempt?
The taxable income is the maturity proceeds minus the total premiums you paid over the term (Section 56(2)(xiii) basis for post-2023 policies; the same net-income approach applies for 194DA TDS). It is added to your income as income from other sources and taxed at your slab rate.
Does the 10% rule apply to single-premium policies?
Yes, and this is the classic trap: single-premium policies almost always breach it, because one large premium easily exceeds 10% of the sum assured. Many single-premium policyholders discover at maturity that the payout is taxable and TDS has been cut.
My premium was exactly 10% of sum assured — am I exempt?
Yes. The condition is that premium must not EXCEED 10% of the actual capital sum assured. Exactly 10% stays within the limit. For disabled persons (Section 80U) or those with specified diseases (Section 80DDB), the cap is 15% for policies issued on or after 1 April 2013.
Related tools & guides
Sources & References
Legal basis: Section 10(10D), Income Tax Act, 1961 (premium ≤ 10%/15%/20% of sum assured by issue date); Finance Act 2023 provisos 6-7 (₹5 lakh aggregate premium, policies issued on/after 1 April 2023) read with Section 56(2)(xiii); Section 194DA TDS at 2% w.e.f. 1 October 2024; CBDT Circular No. 15/2023.
Official sources
Last verified against official sources: July 2026. Figures are researched from the government sources above and checked before publishing. See our Editorial & Verification Policy.
This page and checker are for informational and educational purposes only and reflect the law as verified on the date shown above. Estimates exclude cess and surcharge. Consult a qualified tax professional before acting. This is not financial or tax advice.