Section 10(10D) in 2026: The ₹5 Lakh Premium Rule That Decides If Your Life Insurance Payout Is Tax-Free

By Nitish Bharadwaj · Published Aug 1, 2026 · 7 min

Section 10(10D) still exempts life insurance death benefits fully, regardless of premium size, but maturity proceeds from non-ULIP policies issued on or after April 1, 2023 lose that exemption if the combined annual premium across all such policies exceeds ₹5 lakh — a cap that applies in aggregate, not per policy. ULIPs face a separate, older ₹2.5 lakh cap from February 2021, taxed as capital gains instead. This guide covers the exemption conditions by policy date, the Section 194DA TDS rule on taxable payouts, and why the tax regime you pick changes none of it.

Ask most people whether their life insurance payout is tax-free, and the answer is an automatic yes — Section 10(10D) has exempted life insurance payouts for decades, and that reputation has stuck. It's no longer universally true. Budget 2023 introduced a premium threshold that strips the exemption from maturity proceeds on high-premium traditional policies bought after April 1, 2023, and a similar cap has applied to ULIPs since 2021. The death benefit is untouched by any of this — it stays exempt regardless of premium size. Here's exactly where the line sits, and which of your policies it actually affects.

Death Benefit vs Maturity Benefit: The Distinction Most Guides Skip

Section 10(10D) covers two very different payouts under one exemption, and the rules that follow apply to only one of them. A death benefit — the sum paid to a nominee when the life insured dies during the policy term — remains fully tax-exempt in every case, no matter how large the premium was or when the policy was bought. A maturity or survival benefit — the payout you receive because you outlived the policy term, or a periodic survival benefit under a money-back plan — is the payout that the premium-linked conditions below actually restrict.

The Exemption Conditions, by Policy Date

TDS on Taxable Maturity Proceeds

When the exemption doesn't apply, the insurer deducts TDS under Section 194DA before paying out — but only on the income portion, meaning the maturity amount minus the total premiums you actually paid, not the full payout. The rate is 2% if your PAN is on file with the insurer (reduced from 5% effective October 1, 2024 by the Finance (No. 2) Act, 2024), rising to 20% if it isn't. TDS only kicks in once the aggregate maturity payout in a financial year crosses ₹1 lakh; smaller payouts escape TDS even if technically taxable, though the tax liability itself still has to be reported and paid at return-filing time.

This Doesn't Change Between Tax Regimes

Section 10(10D) is an income exemption, not a Chapter VI-A deduction like Section 80C or 80D — so unlike those deductions, it applies identically whether you file under the old regime or the new regime. Choosing the new regime doesn't restore the exemption on a policy that already fails the premium test, and it doesn't strip the exemption from a policy that qualifies. The premium-based conditions above are the only thing deciding the outcome, regardless of which regime you pick at filing time.

What This Means If You're Buying a Policy in 2026

• Term insurance is unaffected in practice — premiums for pure term cover are a fraction of the ₹5 lakh threshold, and the death benefit is exempt regardless
• If you're buying a traditional or endowment plan for its investment component, keep your combined annual premium commitment across all post-April-2023 non-ULIP policies under ₹5 lakh, or the maturity payout on all of them becomes taxable
• Policies bought before April 1, 2023 aren't touched by this rule retroactively — they continue to follow the older 10%/20%-of-sum-assured test regardless of how large the premium is
• ULIPs follow a separate, lower ₹2.5 lakh cap that has applied since February 2021, and taxable ULIP gains are computed as capital gains, not as income from other sources — see our ULIP maturity tax rules guide for the LTCG/STCG rates and the multi-policy aggregation trap

If you're weighing whether a savings-linked life insurance product still makes sense given these caps, our ULIP vs mutual fund and term insurance comparison runs the actual numbers. If your policy already fails this test and you need liquidity rather than waiting to maturity, borrowing against your policy's surrender value is a separate route that doesn't raise this maturity-tax question at all. And if you're planning to exit an old policy rather than let it mature, the premium-based exemption above only matters if you hold to maturity — our guide to life insurance surrender value rules covers what you get instead if you surrender early.

The Bottom Line

Life insurance maturity proceeds are still tax-free for the vast majority of policyholders — the ₹5 lakh premium threshold only bites high-premium traditional plans bought from April 2023 onward, and it never touches the death benefit at all. The one number worth tracking, if you're buying a large traditional policy for its returns rather than pure protection, is your combined annual premium across every such policy, not just the one you're about to sign up for.