As per section 10(10D), any amount received under a life insurance policy, including bonus is exempt from tax. Following points should be noted in this regard:
Exemption is available only in respect of amount received from life insurance policy.
Exemption under section 10(10D) is unconditionally available in respect of sum received for a policy which is issued on or before March 31, 2003. However, in respect of policies issued on or after April 1st, 2003, the exemption is available only if the amount of premium paid on such policy in any financial year does not exceed 20% (10% in respect of policy taken on or after 1st April, 2012) of the actual capital sum assured. With effect from 1-4-2013, in respect of policy taken in the name of a person suffering from diseases specified under section 80DDB or in the name of a person suffering from disability specified under section 80U, the limit will be increased to 15% of capital sum assured.
Value of premium agreed to be returned or of any benefit by way of bonus (or otherwise), over and above the sum actually assured, which is received under the policy by any person, shall not be taken into account while calculating the actual capital sum assured.
Amount received on death of the person will continue to be exempt without any condition. Note: No exemption would be available in case of any sum received under section 80DD(3) or under Keyman insurance policy.