How to Claim Income Tax Benefits on Life Insurance under Section 80C & 10?

Tax Benefits under Section 80C

Section 80C of the Income Tax Act has a special provision for life insurance premiums, which states that the premiums paid by a policyholder are eligible for income tax deductions. This deduction can be claimed on the gross total income of a policyholder, providing an avenue to save some hard earned money.

Tax Benefits under Section 10(10)D

A life insurance policy aims to provide financial assistance to the family of a policyholder in the event of his/her demise, and a death benefit is typically paid to a nominee in such cases. Section 10(10)D of the Income Tax Act has a provision for tax benefits on the proceeds of a policy, either on maturity, surrender or death.

Limitation of Tax Benefits on Life Insurance Policies

A policyholder should remember that there are certain limits on the amount of tax benefits which can be availed, as mentioned below.

1. A policyholder can claim a maximum deduction of Rs 1.5 lakh on the premiums paid in a year under Section 80C. Gross premiums which exceed 20% of the actual sum assured in a year are eligible for a 20% deduction in case of policies issued before 31/3/2012, while this limit is 10% for policies issued after 1/4/2012.
2. A similar provision is applicable under Section 10(10)D which states that an individual (nominee/policyholder) is eligible to be taxed if the premiums paid in a year exceed 20% of the actual sum assured for policies issued before 31/3/2012 and 10% for policies issued after this date.

Eligibility to claim Tax Benefits on Premiums paid

The following categories are eligible for tax benefits on premiums paid towards life insurance policies.

1. Individuals who have a policy in either their own name or in the name of their spouse or children
2. Hindu Undivided Families

When can Tax Benefits from Life Insurance Policies be claimed?

Eligible individuals can claim tax benefits on their life insurance policies only in the financial year in which the premiums were paid. Tax benefits cannot be claimed for premiums which were paid in the previous year or for premiums for the next year. In simple terms, it means that if you pay premiums for the financial year 2014-2015, you can claim tax benefits only for this year and not for any other year.

How to claim the Tax Benefits?

Eligible individuals who wish to claim tax benefits from their life insurance policies need to do so while filing their income tax returns. Proof of investment will be needed while you file these returns, and a policyholder can mention the amount he/she is eligible for. One should ensure that the information is apt and up-to-date while filing the returns.