What the courts have decided on section 10(10D), in one screen. Read this first; open an entry when you need the facts, the reasoning and the source.
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Sarvesh Naidu v DDIT (Inv)
ITATHelps taxpayerNo later treatment found
My foreign life policy matured and the department has taxed the proceeds under the Black Money Act. Does s.10(10D) help when the insurer is foreign?
Yes. The Tribunal held that s.10(10D) of the Income-tax Act draws no distinction between an Indian and a foreign insurer, and that where the premiums were paid out of income not chargeable to tax in India and out of income that had already suffered tax, the maturity proceeds of the policy could not be treated as undisclosed foreign income or an undisclosed foreign asset under the Black Money Act.
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Statutory position — s.17(3): what "profits in lieu of salary" includes, the exemption receipts it carves out, and the limb that catches money paid before employment begins or after it ends
CBDT Circulars & InstructionsCuts both ways
My client received a payment from a former employer that is not gratuity, not retrenchment compensation and not under any VRS. The Assessing Officer says it is profits in lieu of salary. What exactly does s.17(3) cover, and what does it not?
Section 17(3) has three limbs. Clause (i) covers the amount of any compensation due to or received from an employer or former employer at or in connection with the termination of employment or the modification of its terms and conditions. Clause (ii) covers any payment due to or received from an employer, a former employer or a provident or other fund, but expressly excludes any payment referred to in clause (10), (10A), (10B), (11), (12), (13) or (13A) of section 10, and excludes so much of the payment as consists of the employee's own contributions or interest on them or any sum received under a Keyman insurance policy including bonus allocated on it. Clause (iii) covers any amount due to or received, whether in lump sum or otherwise, by any assessee from any person before his joining any employment with that person or after cessation of his employment with that person.
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Statutory position — s.194DA: payment under a life insurance policy, and the date the base changed from the gross sum to the income component
CBDT Circulars & InstructionsCuts both ways
My insurer deducted tax on the whole maturity amount, not on the gain. Was that right, and from what date is s.194DA computed on the income component only?
The base changed on 1 SEPTEMBER 2019. Until then s.194DA required deduction on the sum paid — two per cent of the sum from 1 October 2014, then one per cent of the sum from 1 June 2016 — with nothing in the text confining it to the gain. From 1 September 2019 the words 'five per cent on the amount of income comprised therein' were substituted for 'one per cent' by Act No. 23 of 2019, and the base has been the income component ever since; the rate then came down from five per cent to two per cent by Act No. 15 of 2024 with effect from 1 October 2024, so the section now requires two per cent on the amount of income comprised in the payment.
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CBDT Circular 15/2023 on the Rs 5 lakh premium test
CBDT Circulars & InstructionsCuts both ways
My client holds four life policies with different premiums and different maturity dates. How do I work out which of them still come out exempt under s.10(10D)?
The circular is the Board's own worked answer to that question. It lays down that the Rs 5,00,000 test is applied afresh in each year in which a sum is received, by aggregating the premium payable on the policy being tested with the premium on every other eligible policy on which exemption has already been claimed, and it tells the assessee he may choose which combination of policies to claim on. It also settles two points the section does not: premium is taken exclusive of GST, and a pure term policy is outside the sixth and seventh provisos altogether and does not count towards the aggregate.
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CBDT Circular 3/2014 - a keyman policy assigned to the keyman stays a keyman policy
CBDT Circulars & InstructionsHelps department
Our company assigned its keyman policy to the director before maturity and he paid the surrender value. Is the maturity money still exempt in his hands?
No, not where the assignment falls in assessment year 2014-15 or later. The Board's explanatory notes to the Finance Act 2013 record that keyman policies were being assigned to the keyman before maturity so that the proceeds could be claimed exempt under s.10(10D), and state that the clause was amended so that a policy assigned during its term, with or without consideration, continues to be treated as a keyman insurance policy. The change applies from 1 April 2014, that is, for assessment year 2014-15 onwards.
Listed strongest first: Supreme Court, then High Court, then Tribunal, then CBDT. Nothing here has yet been read in full by a chartered accountant — open an entry to see where it came from.
