How to Show Life Insurance Maturity Amount in ITR?

To show the life insurance maturity amount in your Income Tax Return (ITR), it is crucial to understand whether the payout is exempt or taxable. If the policy meets specific criteria under Section 10(10D) of the Income Tax Act, the maturity amount is entirely tax-free. If not, it needs to be reported as taxable income under “Income from Other Sources”.

This article will step through the process in detail for policyholders seeking accurate information.

1. Steps to Show Tax-Free Maturity

Arvind purchased a policy in 2018 with a sum assured of ₹1 crore and an annual premium of ₹70,000 (<10%). In this case, the maturity amount would be ₹12,50,000. Since the premium is less than 10% of the sum assured, the maturity amount is exempt under Section 10(10D)

How should Arvind show this in the ITR?

• Go to Schedule EI – Exempt Income
• Select Section 10(10D)
• Enter ₹12,50,000
• Done! No tax payable

2. Steps to Show Taxable Maturity (No ULIP)

Gokul purchased a policy in 2015 with a sum assured of ₹2 lakh and an annual premium of ₹40,000 (>20%). In this case, the total premium paid is ₹4 lakh, and the maturity amount would be ₹4.8 lakh. 

So, the total taxable portion = maturity amount - total premiums paid = ₹4 lakh - ₹4.8 lakh = ₹80,000. The insurer has deducted TDS at 5% on this taxable amount, amounting to ₹4,000.

How should Gokul show this in the ITR?

• Go to Schedule OS - Income from Other Sources
• Enter ₹80,000 under “Other Income”
• Go to Schedule TDS
• Add TDS = ₹4,000 (as per Form 26AS)
• Tax will be calculated automatically on ₹80,000 minus TDS credit

Before reporting a life insurance maturity amount in your Income Tax Return (ITR), it is important to determine whether the proceeds are exempt from tax or taxable. The tax treatment of life insurance maturity proceeds is governed by Section 10(10D) of the Income Tax Act, 1961, which provides tax exemption subject to specific conditions:

When is Maturity Amount Tax-Free?

• Policies Issued After April 1, 2012: The annual premium must be 10% or less of the sum assured. If this condition is met, the maturity amount is tax-free.
• Policies Issued Before April 1, 2012: The annual premium must be 20% or less of the sum assured for it to be tax-exempt.
• Policies for Disabled Individuals or Critical Illnesses (Issued After April 1, 2013): The premium must not exceed 15% of the sum assured.

Additionally, the policy should not be a keyman insurance policy or taken on someone else's life without an insurable interest. For ULIP plans purchased after February 1, 2021, if total premiums exceed ₹2.5 lakh in a year, the maturity amount becomes taxable.

When is Maturity Amount Taxable?

• If the premium exceeds the specified limits (10% or 20%), the maturity amount will be considered taxable income.
• If the total premium for non-ULIPs goes beyond ₹5 lakh in a financial year, the maturity proceeds will also be taxable after deducting the premiums paid.
• For ULIPs issued post-February 1, 2021, gains from the policy will be taxed as capital gains if the total premium exceeds ₹2.5 lakh per year.

If the maturity payout exceeds ₹1 lakh, insurers will deduct 5% tax at source (TDS) on the income component (maturity amount minus total premiums paid) under Section 194DA.

Both the Annual Information Statement (AIS) and Form 26AS provide details about your financial activities, including life insurance maturity proceeds. Here’s a simplified breakdown:

1. Form 26AS

• This form mainly shows tax details like TDS (Tax Deducted at Source).
• If your life insurance maturity amount is taxable and TDS is deducted by the insurer (under Section 194DA), you’ll see the total amount and TDS in Part A.
• If the maturity amount is tax-exempt (like under Section 10(10D)), no TDS is deducted, and it won’t show up in Form 26AS.

2. AIS (Annual Information Statement)

• AIS gives a broader view of your financial transactions reported to the Income Tax Department.
• Maturity amounts will be listed under “Insurance Transactions” or “Other Income.”
• If TDS is deducted, AIS will show both the total amount received and the TDS deducted.
• Even if the amount is exempt, it may still appear as “Exempt Income” for informational purposes.

If you forgot to report your insurance maturity amount in your original ITR, don’t panic. Policyholders can file a revised return if they are still within the filing deadline (usually July 31 for most taxpayers).

If the deadline has passed, you can file an updated return under Section 139(8A), though this comes with additional tax and interest if any tax was payable. It is always better to report correctly the first time to avoid complications later.

Reporting life insurance maturity amount in your ITR doesn’t have to be complicated. Most traditional life insurance maturity amounts are tax-free under Section 10(10D) if premium conditions are met. Even tax-free quantities should be reported in Schedule EI for transparency.

Taxable maturity proceeds go under “Income from other sources”, and only the gain is taxable. ULIPs are treated differently, especially if purchased recently with high premiums. Always claim credit for any TDS deducted. Keep all documents safe for future reference.