CA Sandeep Kanoi
Life insurance policies can be used as tax planning tool as premium paid on Insurance Policies is eligible for tax benefits under Section 80C of the Income Tax Act 1961 (Act) and Maturity Proceeds are also eligible for exemption under section Section 10(10D) and Section 10(10A)(iii). Life Insurance helps Assessee in only tax saving , achieving their long term goals and it also provides Comprehensive financial protection against unforeseen events for your family.
Deduction U/s. 80C in respect of life insurance premium
Who is Eligible Assessee – Individual and Hindu undivided family.
Maximum Limit – Maximum Deduction allowed under this Section is Rs. 1.50 Lakh and the sum includes payment on other allowable investment option available Under Section 80C of the Income Tax Act,1961. It is to be further noted that combined Maximum limit of deduction under Sec 80C & 80CCC & 80CCD (1) is Rs 1,50,000.
Deduction limit: Deduction will be allowed only for premiums upto a maximum of 10% of the sum assured for policy issued on or after April 1, 2012. In case of policy issued before March 31, 2012, deduction will be allowed only for premiums upto a maximum of 20% of the sum assured.
Allowable on Payment- Only life insurance premia paid or deposited during the year are allowable as deduction under Section 80C.
Disallowance: The deductions claimed earlier will be taxable as income if the policy is terminated either by notice or by failure to pay any premium in case of
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(i) in the case of an individual (Resident or Non Resident)
-Major or minor (dependent or not)
– Married or unmarried Daughter / Son (dependent or not)
(ii) in the case of a Hindu undivided family, any member thereof;
Premium Paid on life of parents, Brother, Sisters or In-laws not Eligible- Please note that life insurance premium paid by you for your parents (father / mother / both) Brother, Sisters or your in-laws is not eligible for deduction under section 80C.
More than one insurance policy- If you are paying premium for more than one insurance policy, all the premiums can be included.
Premium Paid to LIC and Other Insurance Companies- It is not necessary to have the insurance policy from Life Insurance Corporation (LIC) – even insurance bought from private players can be considered here.
Premiums on pure endowment assurance policy – A pure endowment assurance policy is an assurance on the life of the assessee and hence the premium paid on such policy would be eligible to rebate under section 80C.
Taxability of Maturity Proceeds
The proceeds under a life insurance policy are exempt under Section 10(10D) of the Act, subject to the provisions of the said section.
Commuted Pension received from Pension fund (Pension Plans approved by IRDA) would be tax-free.
Service Tax on Life Insurance Premium
All premiums and charges are subject to applicable taxes including service tax, education cess and secondary and higher education cess as applicable under the prevailing tax laws.