Sum Received under a Life Insurance Policy [Sec. 92(2)(l)]
by Under Section 92(2)(l) of the Income-tax Act, 2025, certain sums received under a life insurance policy, including amounts allocated by way of bonus, are chargeable under the head “Income from Other Sources” where the receipt is not exempt under the applicable provisions. The taxability mainly depends upon the nature of the policy, premium payable, amount received and statutory exemption conditions. Where the prescribed exemption is available, the receipt remains exempt; otherwise, the taxable income is determined according to the Act.
1. Meaning of Sum Received under Life Insurance Policy
A sum received under a life insurance policy generally includes amounts received on maturity, surrender or other specified events, together with any bonus allocated under the policy. Section 92(2)(l) brings the taxable portion of such receipts under Income from Other Sources where the amount is not exempt under the relevant provisions of the Act. The entire amount received is not necessarily taxable because the law provides a specific computation mechanism for determining income. Further, amounts satisfying the prescribed life-insurance exemption conditions remain outside taxable income. Therefore, the nature of the policy and applicable statutory conditions must be examined before determining tax liability.
2. Taxability of Amount Received
The amount received under a life insurance policy becomes taxable under Section 92(2)(l) when the receipt does not qualify for exemption under the applicable provisions. Taxability may arise where the policy fails to satisfy prescribed conditions relating to the premium, sum assured, date of issue or other statutory requirements. In such cases, the taxable component is generally assessed under Income from Other Sources rather than treating the whole receipt automatically as taxable income. The amount included in income is determined according to the specific computation provisions of the Act. Thus, examination of the policy terms and availability of exemption is essential before calculating taxable income.
3. Amount Received on Death of Insured Person
A sum received under a life insurance policy on the death of the insured person is generally given favourable tax treatment, subject to the provisions and conditions contained in the Income-tax Act, 2025. Such death benefits are distinguished from ordinary maturity or surrender receipts because payment arises due to the insured person’s death. Where the applicable exemption conditions are satisfied, the amount received by the nominee or legal heir, including eligible bonus, is not included in taxable income. Consequently, Section 92(2)(l) principally becomes relevant to those life-insurance receipts that are not otherwise exempt and therefore require taxation under Income from Other Sources.
4. Bonus Received under the Policy
A life insurance policy may provide an additional amount in the form of a bonus along with the basic policy proceeds. For income-tax purposes, the bonus forms part of the amount received under the policy and its tax treatment generally follows the treatment applicable to the underlying insurance receipt. Where the policy proceeds satisfy the conditions for exemption, the qualifying bonus is also generally covered by that exemption. However, where the policy proceeds are taxable, the bonus is considered while determining the relevant receipt for tax purposes. Therefore, the taxability of bonus depends primarily upon whether the life insurance proceeds qualify for statutory exemption.
5. Computation of Taxable Income
Where a sum received under a life insurance policy is taxable, the income component is determined according to the specific computation rule applicable to such receipts. Broadly, the taxable amount is based on the sum received, including applicable bonus, after reducing the eligible premium or consideration paid for the policy to the extent permitted and not previously claimed as a deduction elsewhere. This approach seeks to tax the income element rather than simply treating every rupee of policy proceeds as income. The resulting amount is included under Income from Other Sources and becomes part of the assessee’s total income for the relevant tax year.