Summary: Under the Income Tax Act, individuals can claim tax deductions on insurance premiums, offering relief while ensuring financial protection. Premiums paid on life insurance policies qualify for deduction under Section 80C, up to a limit of ₹1.5 lakh annually, including other eligible investments, but only under the old tax regime. Health insurance and Mediclaim premiums, including critical illness policies, fall under Section 80D. Taxpayers can claim up to ₹25,000 for premiums paid for themselves, spouses, and children. An additional deduction of ₹25,000 or ₹50,000 (if parents are senior citizens) is available for insuring parents. From FY 2024-25, the Income Tax Return (ITR) filing requires policy details such as the insurer’s name and policy number for such claims. Companies buying keyman insurance for crucial employees can deduct premiums as business expenses, though payouts are taxable. However, under the new tax regime (Section 115BAC), most deductions, including for insurance premiums, are not available. Taxpayers must evaluate which regime suits them, considering the trade-off between lower rates and the loss of deductions. Choosing the old regime may benefit those with significant insurance and other deductions, offering better protection against financial risks.
Arjuna (Fictional Character): Krishna, many people are buying Insurance policies and Mediclaim to secure their future and protect themselves from high medical costs. But the premiums are getting expensive. Is there any tax relief available for these insurance expenses under the Income Tax Act?
Krishna (Fictional Character): Arjuna, just like an umbrella protects you from the monsoon rains, the Income Tax Act offers provisions to help you save on taxes when you pay for insurance premiums. These benefits reduce your tax burden while giving you protection from unexpected situations.
Arjuna (Fictional Character): Krishna, which types of insurance premiums qualify for tax deductions under the Income Tax Act and under which tax regime these deductions are available?
Krishna (Fictional Character): Arjuna, under Section 80C, premiums paid on life insurance policies are eligible for a tax deduction. This is like how you invest in durable equipment to weather a storm. This deduction is available for policies taken for yourself, your spouse, children, or parents, but the total deduction, including other investments, is capped at Rs. 1.5 lakh per year. And these tax benefits are available only if you opt for the old tax regime.
Arjuna (Fictional Character): What about premiums for health insurance or Mediclaim policies and premiums for critical illness policies?
Krishna (Fictional Character): Yes, Arjuna, under Section 80D, you can claim a tax deduction for premiums paid on health insurance. Think of it as a raincoat that shields you from the downpour of medical expenses. You can claim up to Rs. 25,000 for yourself, your spouse, children, or parents (if they are below 60 years). If your parents are senior citizens, you can claim up to Rs. 50,000 for them. This is over and above the Rs. 1.5 lakh limit under Section 80C. Premiums paid for critical illness policies are also eligible for tax deductions under Section 80D, just like regular health insurance. These policies act as an extra layer of protection when the storm of a major illness hits, helping reduce the financial burden during tough times.
Additionally, starting from FY 2024-25, the government now requires policyholders to provide the name of the insurance company and policy number while filing the Income Tax Return (ITR) for the medical premiums paid. This ensures transparency and proper documentation during the tax filing process.
Arjuna (Fictional Character): Krishna, many companies take keyman insurance for key employees. Are there any tax benefits associated with it?
Krishna (Fictional Character): Yes, Arjuna, under keyman insurance, companies can avail tax benefits. This insurance is taken on the life of an important employee whose role is crucial for the company’s operations. The premiums paid for keyman insurance are treated as a business expense for the company, and they can claim a tax deduction for the same. However, the proceeds received from such insurance are taxable in the hands of the company. This means that while the company gets a tax break on premiums, it will be liable for tax on the payout.
Arjuna (Fictional Character): Krishna, what about the new tax regime introduced under Section 115BAC? Does it affect these deductions?
Krishna (Fictional Character): Arjuna, under the new tax regime, most deductions, including those for life insurance and health insurance premiums, are not available. It’s like trying to navigate the monsoon without an umbrella—you may save some money, but you lose the protection that these deductions offer. Choosing the new tax regime means giving up these benefits in exchange for lower tax rates.
Arjuna (Fictional Character): Krishna, what should taxpayers learn from all this?
Krishna (Fictional Character): Arjuna, just as an umbrella shields you from the monsoon rains, insurance protects you from unexpected financial storms. Taxpayers should carefully choose insurance policies and make the most of the available deductions under the old tax regime. By doing so, they can reduce their tax burden while securing their health and future. If deductions are significant, the old tax regime may still be the best option, offering a stronger shield against financial risks.
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