Often, people opt into life insurance because of reasons that have to do with tax planning and saving. The importance of life insurance is not lost on anyone who has a family or dependents. Life insurance provides an essential financial shield for the family in the unfortunate event of the policyholder’s demise. So the decision to get a policy begins with protection but extends to investment corpus and guaranteed returns. However, the implications of life insurance and the payment of premium on the taxes are what catches the attention of many.
Life insurance policies are one of the most widely used tax saving investment instruments. This route is also easy to understand by the layman who knows little about investing and the market. The life insurance tax benefits are a major selling point.
Let’s look into the tax benefits offered by life insurance policies under different sections of the Income Tax Act 1961 in detail:
Life insurance tax benefits begin right when you start paying the premiums. Under Section 80C of the Income Tax Act 1961, the policyholder can avail tax benefit on the premium paid towards life insurance plans. This tax deduction under section 80C is available for Hindu Undivided Families (HUF) and individuals.
You should make a note of a few guidelines related to this tax exemption. First of all, the premium paid towards life insurance plans is eligible for deduction under this section only up to the maximum limit of Rs 1,50,000. If you enroll in a life cover policy that is approved by the Insurance and Regulatory Development Authority of India (IRDAI), this deduction can be availed. Simply put, you can reduce up to Rs 1,50,000 from your total taxable income while filing your Income Tax Return. Therefore, under term life insurance plans like the Future Generali Flexi Online Term Insurance Plan, the premium(s) paid by you are eligible for tax beneﬁts. These tax benefits extend to all life insurance plans, including those with an investment component, like ULIPs. The Future Generali Big Dreams Plan is a unit-linked plan with life insurance cover, and it also allows tax benefits.
However, to claim a deduction under section 80C the premium paid should not exceed 10% of the sum assured where the policy has been issued after 1st April 2012. For policies issued prior to 1 April 2012, the premium paid should not exceed 20% of the sum assured. Moreover, under section 80C(5) if the insurance holder voluntarily surrenders his policy or in case the policy is terminated before 2 years from the date of commencement of the policy, then the insured will not receive any benefits on the premium paid that year, that are usually offered under section 80C of the Income Tax Act.
In case of ULIPs, if the insurance holder voluntarily surrenders his policy or in case the policy is terminated before 5 years from the date of commencement of the policy, then the insured will not receive any benefits on the premium paid.
Under Section 10(10D) of the Income Tax Act, 1961 the sum assured amount including the sum allocated by way of bonus on such a policy paid on surrender or maturity of the policy or in case of death of the insured in entirely tax-free for the receiver. This amount paid to the beneficiary could be allocated sum by way of bonus, maturity benefit, survival Benefit, death benefit or surrender value.
These will however not include any sum received under an insurance policy issued on or after the 1st day of April, 2003 but on or before the 31st day of March, 2012 in respect of which the premium payable for any of the years during the term of the policy exceeds twenty percent of the actual capital sum assured; or any sum received under an insurance policy issued on or after the 1st day of April, 2012 in respect of which the premium payable for any of the years during the term of the policy exceeds ten percent of the actual capital sum assured.
During the calculation of total income, these incomes are not included at all. Section 10(10D) deduction is also applicable to gains and proceeds from a ULIP.
Life insurance is one of the most popular ways of tax planning for saving. Save taxes and your family’s future with one move: get a life insurance policy!