Every few years, a payout lands in the bank account from a money-back policy. It feels like a bonus. Most people move the money somewhere useful and think nothing more of it. The tax side never enters the picture.
That works fine until a Form 26AS download shows a figure that the return never accounted for. Or until an intimation arrives pointing to income that was received but never reported.
Neither situation is hard to avoid. Twenty minutes with the right documents before filing is all it takes.
How a Money-Back Policy Works
A money-back policy does not wait until the policy term ends to return money. A fixed percentage of the sum assured comes back at regular intervals during the term. These periodic payments are called survival benefits. When the policy matures, and the holder is still alive, whatever remains, along with any accumulated bonuses, is paid out as the maturity amount.
If death occurs during the term, the full sum assured goes to the nominee. Survival benefits already paid out do not reduce that amount.
Because money comes back at multiple points during the policy term, there are multiple events to account for from a tax perspective. Each payout needs to be looked at separately rather than assumed to follow the same rules as the one before it.
The Tax Free Assumption is Not Always Correct
Most money-back policyholders assume every payout they receive is tax-free. Many are. But not all, and assuming without checking is where things go wrong.
Section 10(10D) of the Income Tax Act exempts maturity proceeds and survival benefits from tax, but with conditions attached.
For policies taken out on or after April 1, 2023, the annual premium must not exceed Rs. 5 lakh for the proceeds to stay tax-free. Cross that figure, and the payout becomes taxable as income from other sources.
For policies issued before April 1, 2023, the annual premium must not exceed 10% of the sum assured for the exemption to hold.
Most retail policies fall within the exempt category. But policies with higher premiums and larger sum assured amounts can cross the threshold without the holder realising it. A policy bought years ago with a premium that felt manageable then may fall outside the exemption rules today.
When a payout is taxable and exceeds Rs. 1 lakh in a financial year, the insurer deducts TDS at 2% under Section 194DA before releasing the amount. That deduction shows up in the Form 26AS. If the return does not account for the income behind it, a mismatch gets flagged during automated processing.
Reading the Form 26AS Download Properly
Form 26AS is the consolidated tax statement capturing every tax-related transaction linked to a PAN for a given financial year. For FY 2025-26, the Form 26AS download from the income tax e-filing portal reflects TDS deducted by insurers on money-back policy payouts alongside every other deduction made during the year.
When a survival benefit or maturity amount is paid, and TDS has been deducted, the transaction sits under Part A of the Form 26AS. The insurer appears as the deductor. The gross payout is listed. The TDS sits in a separate column.
This shows two things. How much TDS has already been credited against the PAN, and will reduce the final tax liability. And whether any payout was received during the year that needs to be declared as income, even if no TDS was deducted, because the amount stayed below Rs. 1 lakh.
Three Things to Check Before Filing
Does the insurer’s figure match what the Form 26AS shows
Pull out the payment advice or policy statement sent when the payout was made. Compare the payout amount and TDS figure on that document against what the Form 26AS download shows. Insurers sometimes file TDS returns late or with PAN errors that cause the figures to differ. When the numbers do not line up, the insurer needs to correct the TDS filing before the return is submitted.
Have all payouts during FY 2025-26 been captured
If the money-back policy paid out survival benefits more than once during the year, each payment should appear separately in the Form 26AS. A missing entry points to a TDS filing gap on the insurer’s side. Getting this corrected before filing takes a call or email to the insurer. Leaving it uncorrected creates a discrepancy that shows up during processing.
Do the Form 26AS and Annual Information Statement tell the same story
For FY 2025-26, the Annual Information Statement carries significantly more detail than earlier versions and captures insurance payouts as a separate category. Both documents should reflect the same figures. A gap between the two signals something that needs resolving before the return is submitted.
Sort Mismatches Before Filing
A difference between the Form 26AS download and the actual money-back policy payout received during FY 2025-26 should not be carried into the return.
Contact the insurer, ask them to check the TDS return filed for the relevant quarter, and if an error is confirmed, request a correction through the TDS traces system. Once updated, the corrected figures appear in the Form 26AS, and the return can be filed with numbers that hold up.
Filing a return that contradicts the Form 26AS is one of the more reliable ways to receive an intimation under Section 143(1). Sorting the mismatch beforehand removes that possibility.
A Small Check That Prevents a Larger Problem
A Form 26AS download takes a few minutes. Matching it against the money-back policy statements for FY 2025-26 takes a few more. Together, they give a complete picture of every payout received, every rupee of TDS deducted, and whether the figures are ready to go into the return without creating a problem that surfaces later.
That check done before filing is considerably easier than explaining a mismatch after the return has already gone in.
