Income Tax Exemption on LIC Premium

All tax exemption for payment of LIC premiums are offered as per section 80C of the Income Tax Act, 1961

1. Tax benefits on Life Insurance policies from LIC (under section 80C) : Let us look into the tax benefits that are received by customers under section 80C if they purchase a life insurance policy from LIC.

1. Premium paid towards life insurance policy (availed on or before 31st March 2012) in the name of self/spouse/child is eligible for deduction up to 20% of the actual capital sum assured
2. Premium paid towards life insurance policy (availed after 1st April 2012) in the name of self/spouse/child is eligible for deduction up to 10% of the actual capital sum assured
3. Contribution towards deferred annuity plans to keep a deferred annuity plan for self/spouse/child is eligible for deduction but only if the contract does not offer cash payment to the customer in lieu of annuity payment made by him or her.

1. Tax benefits on LIC insurance policies under section 80CCC: Section 80CCC comes under the umbrella of section 80C and offers tax exemption to customers who are paying insurance premiums from their taxable income towards any annuity plan that promises them payment of pension in the later year.
   1. NOTE: For deduction purposes, the mode of payment for health insurance plays an important role. The mode of payment can be cash or any other mode for preventive health check-ups while for any other medical issue listed above the payments need to be made in any mode other than cash.
   2. Tax benefits under section 80D which are applicable to LIC insurance policies
   3. Almost all health insurance related tax benefits come under the purview of section 80D of the Income Tax Act. Let us look into each of these deductions in detail.
   4. Up to Rs.25000 is allowed as deduction for customers who have paid money towards government health insurance scheme or health insurance for self or family or on account of health check-up of either the policyholder or his/her family
   5. Additional Rs.25000 worth of deduction is allowed in case you have paid premium towards keeping up the health insurance or health check-up of parents whether dependent or not
   6. In case, for the above two points of exemption, any of the members is above 60 years of age then the deduction will go up by Rs.5000 and the allowed limit changes to Rs.30,000
   7. In case any of the health check-ups made above are preventive in nature then the maximum limit allowed is Rs.5000
   8. For HUFs, deduction allowed is up to Rs.25,000 if the amount is paid towards availing health insurance for any member of the HUF.
2. Tax benefits on LIC insurance policies under section 80DD: Section 80DD of the Income Tax Act comes under section 80D and deals with tax exemption for any person who is depositing a certain amount with LIC for maintenance of a handicapped person. The limit for this deduction is Rs.50,000. In case, the disability suffered by the handicapped person is severe, then the limit is increased to Rs.1,00,000. Jeevan Aadhar plan from LIC is aimed towards meeting this particular insurance need of customers.
3. Tax benefits on LIC insurance policies under section 10 (10D): Any death claims or maturity benefits received by a policyholder are eligible for tax exemption under section 10 (10D) of the Income Tax Act. Here are a few possibilities that are included in this. Listed above are the various tax exemptions that are applicable to insurance policies offered by LIC to customers in India. However, there is a very important point that needs to be kept in mind while availing insurance and looking for tax benefits to be reaped out of it. That point is the maximum deduction allowed as a tax benefit is Rs.1,50,000 and includes all other tax exempted financial products too which fall under section 80C of the Income Tax Act. Also, the combined maximum limit for deduction under sections 80C, 80CCC and 80CCD is Rs.1.5 lakh, currently.
   1. First and foremost the point about the application of this tax benefit is that the main insurance policy should not have been issued under section 80DD or as a keyman policy.
   2. Up to 20% of the actual sum assured is exempt from tax for policies issued on or after 1^st April 2013
   3. Up to 10% of the actual sum assured is exempt from tax for policies issued on or after 1^st April 2012
   4. These insurance policies should be issued for life protection of a person suffering from severe disability as referred in section 80U or suffering from an ailment listed in section 80DDB

TDS on Policy Benefits

TDS may be deducted by LIC prior to the payment of policy benefits if the policy benefit is not exempt under Section 10 (10D) of the Income Tax Act, 1961 due to the premium surpassing the prescribed limit of the sum assured. A TDS of 5% will be deducted only in cases where the plan's maturity benefit exceeds Rs.1 lakh.