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  • Life Insurance for Tax Benefits

    There are many life insurance plans out there from various insurance companies that can help you save on tax under various sections of the Income Tax Act, 1961.

    Tax can be saved by way of deductions and exemptions, as explained below:

    Saving on Tax with Life Insurance

    Deductions:

    1. Section 80C:
    2. There are many investments that can help you save on tax under Section 80C, the most popular and beneficial of which is investing in a good life insurance policy.

      • This deduction is available for individuals and Hindu Undivided Families (HUF).
      • The maximum amount that can be exempted from taxation under Section 80C, 80CC and 80CCE is Rs.1,50,000.
      • Deductions are only allowed for Premiums up to 20% of the Sum Assured, if the amount of Premium paid in a particular financial year for a policy is in excess of 20% of the actual Sum Assured.
      • In the case of insurance policies issued on or after the 1st of April, 2012, the deductions are only allowed for so much of the premiums payable as don’t exceed 10% of the actual capital Sum Assured.
      • If the benefit has been claimed under this section, and the policy has been terminated or annulled within 2 years from the commencement of the policy, the benefit will be reversed.
      • If the benefit has been claimed under this section, and the ULIP has been terminated or annulled within 5 years from the commencement of the ULIP, the benefit will be reversed.
    3. Section 80D:
      • This tax benefit is available to individuals and Hindu Undivided Families (HUF).
      • Under Section 80D, the qualifying amounts are:

        • For self, spouse, and dependent children: Up to Rs.25,000.
        • For parents: An additional Rs.25,000.
        • For parents who are senior citizens: Rs.30,000.
      • Assesses are allowed to make payments on preventative health check-ups of Rs.5,000 within the prescribed overall limit.
      • If there is no insurance policy in force for very senior citizens (over the age of 80), any medical expenditure of up to Rs.30,000 can be claimed as an deduction.
    4. Section 80DD:
      • Premiums paid for disabled dependants can be claimed for deductions up to Rs.50,000 per year.
      • Premiums paid for disabled dependants with severe disabilities can be claimed for deductions up to Rs.75,000 per year.

    Exemptions:

    1. Section 10 (10D):
      • Any amount received under a life insurance policy qualifies for this deduction. A sum received could be:

        • Sum allocated by way of bonus.
        • Survival benefit.
        • Maturity benefit.
        • Surrender Value.
        • Death benefit, etc.
      • This deduction also applies to proceeds and gains from a ULIP.
      • The following cases are exempted under this section:

        • Pay-outs on annuity or pension plans.
        • Insurance policies for disabled dependents.
        • Group life insurance plans sponsored by employers.
        • Policies bought between the 1st of April 2003 and the 31st of March 2012, whose premium in any year is more than 20% of the Sum Insured.
        • Policies bought after 1st April 2012, if the premium in any year is more than 10% of the Sum Insured.
        • Policies bought for disabled people or those suffering from ailments as under Section 80DDB after 1st April 2013, if premiums on these policies are more than 15% of the Sum Assured.
      • The conditions above do not apply to death claims, or any amount received on the death of the life insured.
      • There is no cap on maximum deduction allowed under Section 10 (10D).

    * The above data is taken from the Income Tax Act, 1961, and tax laws are subject to change. Please check the latest information of tax saving instruments under the abovementioned sections before making any financial decisions. Check with your insurance provider on the tax saving opportunities under various sections before signing your policy document.

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