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Is LIC Maturity Amount Taxable in 2026? Section 10(10D) Explained

By LicBaba Expert Team•7 min read

For decades, LIC maturity returns were synonymous with tax-free wealth. However, key tax changes have introduced limits. Learn the exact rules for 2026.

Understanding the tax implications of your life insurance policy is crucial to calculating your actual post-tax returns. Under the Indian Income Tax Act, premiums paid and maturity payouts receive special treatment under Section 80C and Section 10(10D) [धारा 10(10D)]. However, the Finance Act has introduced key restrictions that affect high-value policies.

Section 10(10D) Rules: Old vs. New Policies

The taxability of your LIC maturity payout [मैच्युरिटी] depends on the date your policy commenced:

1. Policies Purchased Before April 1, 2023

Maturity proceeds are **100% tax-free** if the annual premium (प्रीमियम) does not exceed **10% of the Sum Assured** (for policies issued on or after April 1, 2012). If the premium exceeds 10% of the SA, the maturity amount is fully taxable under "Income from Other Sources".

2. Policies Purchased On or After April 1, 2023

The Union Budget introduced a major cap: if the aggregate annual premium of all traditional policies (Endowment, Whole Life, Money Back) purchased after April 1, 2023 exceeds **₹5,00,000 (5 Lakhs)**, the maturity proceeds of those policies will be **fully taxable**.

Only policies whose combined premium is under the ₹5 Lakh threshold remain tax-free under Section 10(10D).

Taxation on Death Claims

💡 Crucial Exception: The ₹5 Lakh premium limit does NOT apply to death claims. If the policyholder passes away, the death claim payout received by the nominee is 100% tax-free under Section 10(10D), regardless of premium size.

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Frequently Asked Questions

The payout is tax-free under Section 10(10D) if: (1) The policy was purchased before April 1, 2023, and the annual premium is under 10% of the Sum Assured. (2) The policy was purchased on or after April 1, 2023, and the total annual premium of all traditional policies combined does not exceed ₹5 Lakhs.
If the total annual premium of traditional insurance policies purchased after April 1, 2023 exceeds ₹5,00,000, the final maturity proceeds will be taxable under the head "Income from Other Sources". The taxable income is calculated as the maturity amount minus total premiums paid.
No. Death claim payouts received by nominees are 100% tax-free under Section 10(10D), regardless of the premium size, policy term, or date of purchase. Family protection payouts are never taxed.
ULIPs (Unit Linked Insurance Plans) have a separate threshold. ULIP maturity is taxable if the total annual premium exceeds ₹2.5 Lakhs. The ₹5 Lakh premium threshold applies to traditional policies (Endowment, Whole Life, Money Back).