Life Insurance policies are considered to be the most effective tax-saving tool for any individual, in addition to providing financial security and protection to his / her family. Under the Income Tax Act, 1961, life insurance policies have been entitled to tax benefits portfolio of any individual when distributed in various insurance products like term insurance, life insurance health insurance or ULIPs come with a lot of tax benefits. The premiums and the benefits of the policies are both exempted from the purview of being taxed. This means that, both the premiums you pay for your life insurance policies and the benefits you receive are tax-free.
Let us take a look at the various heads under which you can get a tax exemption for your life insurance policies.
Section 80 C: Deductions for Premium Payment of Life Insurance Policies
Section 80 C of the Income Tax Act, entitles you to:
- A deduction from your taxable income, of the premiums paid for all your Life insurance policies. There is a cap on the maximum limit of INR 150000 p.a. which can be deducted from your income by way of your premiums of Life insurance policies
- The premiums paid for self, spouse, dependent children and any member of the Hindu Undivided Family (HUF) can be included in the deductions under Section 80 C
- Besides the fact that the maximum limit of the premiums paid is INR 150000, the maximum limit of the premiums paid may also vary depending on the sum assured. The date of issuance of the policy determines this maximum limit, in such cases, in accordance with the following rules:
- If the policy is issued before 1st April 2012, the deduction can be availed for premiums up to 20% of the sum assured
- If the policy is issued on or after 1st April 2012, the deduction can be availed for premiums up to 10% of the sum assured
- If the policy is issued on or after 1st April 2013, for a person who is disabled or suffering from a severe disability or a disease, the deduction can be availed for premiums up to 15% of the sum assured.
Section 80D: Deductions for Premium Payment of Health Insurance Riders Along with Life Insurance Policies
The amount of premium paid towards a health rider like a critical illness rider or a personal accident rider with a life insurance policy qualifies for a deduction under section 80 D of the Income Tax Act, 1961. This 80D benefit entitles you to:
- A deduction of the premiums paid for all your health policies, from your taxable income. The maximum limit for the health insurance policies are:
- Premium paid for self, husband/wife and children capped at INR 25000 p.a.
- Premium paid for policies of parents is capped at an additional amount of INR 25000 p.a.
- It is important to note that in case any of the above-mentioned relationships happen to a senior citizen, then an increased deduction of INR 30000 is permissible
- INR 5000 is also included in preventive health check-up in the limits mentioned above
- Section 80D also exempts additional health riders in life insurance like personal accident, critical illness, etc. from Income Tax till a limit of INR 25000 and an additional limit of INR 25000 for policies in the name of parents.
- Section 80DD
This section includes a deduction for the premium paid for the people who are disabled and are dependent for their medical treatment. In such cases of disability, the limit of deductions for premiums is INR 75000 per year. In case the disability of the person is severe then an increased amount of INR 125000 is allowed as deduction.
Section 10 (10)D: Exemptions for Maturity Benefit of Life Insurance Policies
Section 10(10D) of the Income Tax Act entitles you to:
The total amount received at the maturity of a policy or in case a policy is surrendered, is exempted from income tax, under this section, provided all the terms and conditions are fulfilled. This total amount is inclusive of the total bonus amount payable at the time of maturity/surrender.
However, the conditions applied for the tax exemption under this section are:
- The premium should not exceed 1/10th of the sum assured for all the years.
- The policy is surrendered after at least the first five years have passed from the start of the policy.
- In case of death benefits, no such rule applies. Irrespective of the premium paid, death benefits are completely tax-free.
Highlights to Remember about tax benefits in Life Insurance Plans:
- Life Insurance Premium:
Tax exemption under Section 80C: Maximum limit of INR 150000
- Health Insurance Premiums + Health Rider in Life Insurance Policies:
Tax exemption under Section 80D: Maximum limit of INR 25000 for self, spouse and children + INR 25000 for parents per year / INR 30000 for parents over the age of 60 years of age.
- Maturity for Life Insurance Policy:
Tax exemption under Section 10(10)D: No maximum limit if the conditions (TWO) applied are abided by.
A Life Insurance Policy not only provides financial security for the family but also helps in saving taxes. So, to enjoy the fullest benefits of your life insurance policies, keep yourself updated on the tax benefits of those policies and relax as you are covered for most of your exigencies in life, whether now or later!