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Section 10(10D) Rs 5 lakh premium cap on tax-free maturity
What it is
Section 10(10D) of the Income Tax Act exempts life insurance maturity proceeds from tax. Budget 2023 removed that exemption where aggregate annual premium across a policyholder's non-ULIP policies exceeds Rs 5 lakh, for policies issued from 1 Apr 2023
A parallel Rs 2.5 lakh cap already applied to ULIPs. Death benefits remain exempt regardless of premium size
Impact on industries
- Removed the tax arbitrage underpinning high-ticket guaranteed savings, which had been the fastest-growing and highest-margin part of the non-par book
- Concentrated the damage in the affluent segment, where a handful of large policies contributed disproportionately to APE
- Pushed the industry toward protection, annuity and genuinely insurance-led propositions rather than tax-driven savings, which is a healthier long-run base
- The cap is on aggregate premium per policyholder, so distribution now requires tracking a customer's total premium across insurers - a practical constraint rather than a product one