Rule 59: Taxable life-insurance receipt calculation
Rule 59 computes income under section 92(2)(l) from the defined taxable life-insurance receipts. It distinguishes the first receipt year from later years and excludes premiums already deducted elsewhere or already used in an earlier computation.
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Rule 59 - Computation of income chargeable to tax under section 92(2)(l)
(1) For the purposes of section 92(2)(l), if a person receives any sum, including the amount allocated by way of bonus, during a tax year under a life insurance policy, then the income chargeable to tax under the said section shall be computed in the following manner:— (i) where the sum is received for the first time under the life insurance policy during the tax year (herein referred to as first tax year), the income chargeable to tax in the first tax year shall be computed in accordance with the formula— A-B Where, — A = the sum or aggregate of sum received under the life insurance policy during the first tax year; and B = the aggregate of the premium paid during the term of the life insurance policy till the date of receipt of the sum in the first tax year that has not been claimed as deduction under any other provision of the Act; and (ii) where the sum is received under the life insurance policy during the tax year subsequent to the first tax year (hereinafter referred to as subsequent tax year), the income chargeable to tax in the subsequent tax year shall be computed in accordance with the formula, — C-D Where, — C = the sum or aggregate of sum received under the life insurance policy during the subsequent tax year; and D = the aggregate of the premium paid during the term of the life insurance policy till the date of receipt of the sum in the subsequent tax year not being premium which— (a) has been claimed as deduction under any other provision of the Act; or (b) is included in amount 'B' or amount 'D' of this sub-rule in any of the year or years preceding the tax year.
(2) For the purposes of this rule, the sum received under a life insurance policy shall mean any amount, by whatever name called, received under such policy that is not excluded from the total income of the tax year in accordance with the provisions of Schedule II [Table: Sl.No.2], other than the sum— (a) received under a unit linked insurance policy; or (b) being the income referred to in section 92(2)(d).
Rule breakdown
Confirm that the receipt falls within this rule
The definition covers an amount received under a life-insurance policy that is not excluded from total income under the specified Schedule II entry. It expressly excludes a ULIP receipt and the income referred to in section 92(2)(d).
Check the policy and statutory receipt category before calculating. This rule is not a statement that every life-insurance payment is taxable.
First tax year: A minus B
A is the sum or aggregate of sums received under the policy during the first tax year. B is premiums paid during the policy term up to the relevant receipt date that have not been claimed as a deduction under another Act provision.
The opening provision includes allocated bonus. Reconcile all relevant receipts and the premium deduction history rather than relying only on the insurer’s net payout figure.
Later tax years: C minus D
C is the sum or aggregate received in the subsequent tax year. D excludes premiums already claimed as a deduction elsewhere and premiums previously included in B or D in an earlier tax year.
Maintain a running premium-use schedule. A premium that reduced the first-year taxable amount cannot be used again merely because another policy receipt arrives later.
Illustrative calculation across two years
Hypothetical: first-year relevant receipts including bonus are ₹8 lakh. Premiums paid up to receipt total ₹5 lakh, of which ₹1 lakh was claimed as a deduction elsewhere. B is ₹4 lakh and the formula gives income of ₹4 lakh.
In a later year, suppose the relevant receipt is ₹3 lakh and a further ₹1 lakh of premium has been paid without another deduction claim. If all earlier eligible premiums were already used, D is ₹1 lakh and the later formula gives ₹2 lakh. These figures assume the receipt is within the rule.
Keep the exemption, premium and receipt file together
Retain policy terms, insurer statements, receipt and bonus details, premium dates and evidence of previous deduction claims. Record each year’s B or D amount and the premiums left unused.
The formula determines the amount under the identified income provision. The applicable tax regime, rate and other statutory conditions require separate consideration.
Key takeaways
Defined taxable receipt
Check the Schedule II treatment and express exclusions first.
Bonus included
The opening receipt provision includes allocated bonus.
No repeated premium benefit
Exclude other-provision deductions and previously used premiums.
Practical checklist
- Verify the taxable-receipt category before applying the formula.
- Track receipts and allocated bonus by tax year.
- Maintain a premium schedule showing deduction claims and previous use.
Avoid
- Do not apply this rule indiscriminately to all life-insurance receipts.
- Do not reuse premiums already deducted or previously considered.
FAQs
Does the rule apply to a ULIP receipt?
Sub-rule (2) expressly excludes sums received under a unit-linked insurance policy from this rule’s definition.
Can premiums already deducted under another section reduce this income?
The B and D definitions exclude premiums claimed as deductions under another Act provision.
Can unused historical premiums be considered in a later year?
Apply D to premiums paid up to the relevant receipt date, excluding other deductions and amounts already included in B or D in previous tax years.
Glossary
- First tax year
- The tax year in which the sum is first received under the policy for this computation.
- B
- The eligible premium amount defined for the first-year calculation.
- D
- The eligible later-year premium amount after the stated exclusions.