Is the ₹5 lakh premium limit applicable to death claims?

No. The ₹5 lakh limit only applies to maturity proceeds. Death benefits remain 100% tax-free regardless of the premium amount.

Do nominees of NRIs have to pay tax on Indian policy payouts?

No. Death benefits from Indian insurance policies are exempt for NRI nominees as well under Section 10(10D).

Is interest paid on a delayed claim taxable?

Yes. While the claim amount is tax-free, any interest paid by the insurer for a delay is taxed as 'Income from Other Sources'.

Are accidental death rider payouts tax-exempt?

Yes. Payouts from riders like accidental death or disability are considered part of the insurance sum and are fully tax-exempt.

Should a nominee report the tax-free payout in their ITR?

Yes. It should be reported under the 'Exempt Income' section to provide a clear record of the source of funds.

Is a health insurance reimbursement taxable for the nominee?

No. Medical reimbursements are compensations for expenses already incurred and are not treated as taxable income in India.

Income Tax Exemption on Payouts for Nominees: Section 10(10D)

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Life Insurance Guides

Why Your Family Won't Pay a Single Rupee in Tax on Your Life Insurance Payout

Understand how Section 10(10D) protects your nominee from tax cuts and why even the latest budget rules do not touch death benefits.

4 min read

OneAssure Team

April 13, 2026

Need advice tailored to you?

Looking for the right plan? You don't have to guess. Let us compare the fine print for you and give you an unbiased recommendation.

Need advice tailored to you?

Looking for the right plan? You don't have to guess. Let us compare the fine print for you and give you an unbiased recommendation.

The Zero-Tax Shield for Your Family

Imagine your family receives a ₹1 crore life insurance claim. It is a massive relief during a dark time. But then, a thought hits them. Does the government take 30% of this? Does a ₹30 lakh tax bill wait for them? The short answer is no. Actually, the law is very clear. Section 10(10D) of the Income Tax Act ensures that death benefit payouts are 100% tax-free for the nominee. No strings attached. No hidden deductions.This rule is the ultimate safety net. It does not matter if you have a basic term plan or a high-value policy. When the insurer pays the nominee because of the policyholder's passing, that money is not considered 'income'. It is a capital receipt meant for protection. Your family gets every single paisa you planned for them. This remains true whether they choose a lump sum or monthly payouts.

The 5 Lakh Limit Myth

You might have heard about the 2023 Budget changes. The government introduced a ₹5 lakh premium limit. Many young earners got worried. They thought if their premium is high, the payout becomes taxable. This is a misunderstanding. That ₹5 lakh limit only applies to maturity proceeds of non-ULIP policies issued after April 1, 2023. It also applies to ULIPs with premiums over ₹2.5 lakh.But here is the catch. This limit vanishes during a death claim. Even if you pay ₹6 lakh in annual premium, the death benefit paid to your nominee stays exempt. The taxman does not touch the money meant for a family's survival. Whether your policy is old or brand new, the death benefit is always protected from income tax.

Riders and Bonuses: Are They Taxed?

Many of us add an Accidental Death Benefit rider to our base plan. If the payout increases because of an accident, is the extra money taxable? No. Section 10(10D) covers the entire sum received under the policy. This includes the base sum assured and any rider payouts. It also includes any bonuses the insurer added over the years. If a ₹50 lakh policy grew to ₹60 lakh with bonuses, the entire ₹60 lakh is tax-free. Your nominee receives the full amount without any TDS (Tax Deducted at Source).

What About Group Insurance from Your Boss?

Most of us have a group term plan from our employer. If a claim happens, the tax rules stay the same. The payout received by the nominee is exempt under Section 10(10D). However, you should check if your employer treats the premium they pay as a taxable 'perquisite' for you. Usually, if the sum assured is large, a small portion of the premium might show up in your Form 16. But for the nominee, the final claim amount is pure and tax-exempt.

The Only Taxable 'Gotcha': Interest on Delays

Insurance companies sometimes take time to settle a claim. If there is a long delay, the law requires them to pay interest. Here is where things change. The core claim amount is tax-free. But the interest paid on that amount is taxable. The tax department views this interest as 'Income from Other Sources'. Your nominee must report this interest in their tax return. It will be taxed according to their personal income tax slab.

How to Report This in Your ITR

Even though the money is tax-free, you must not hide it. When your nominee files their Income Tax Return (ITR), they should report the insurance payout under the 'Exempt Income' schedule. Specifically, they should mention it under Section 10(10D). Doing this is simple. It creates a clear paper trail. If the tax department ever asks about a sudden large deposit in the bank account, this ITR entry is the proof. It prevents unnecessary notices and saves everyone from future stress.

A Quick Word on GST

Buying protection is getting even more affordable. Following recent discussions, the GST Council has moved toward removing the 18% GST on individual life and health insurance premiums. This change, expected to be effective from late 2025, means you pay less for the same cover. Platforms like OneAssure can help you stay updated on these shifting rules so you never overpay for your security.Tax laws can feel heavy. But for life insurance, the core message is light. The money you leave behind is for your family, not the tax department. Keep your documents ready, choose your nominees wisely, and rest easy knowing their future is tax-proof.