Life Insurance for Tax Benefits

Section 80C:

Many investments can help you save on tax under Section 80C, the most popular and beneficial of which is investing in a good life insurance policy.

1. This deduction is available for individuals and Hindu Undivided Families (HUF).
2. The maximum amount that can be exempted from taxation under Section 80C, 80CC and 80CCE is Rs.1,50,000.
3. Deductions are only allowed for Premiums up to 20% of the Sum Assured, if the amount of Premium paid in a particular financial year for a policy is in excess of 20% of the actual Sum Assured. This is relevant only to policies that were issued before 31 March 2012.
4. In the case of insurance policies issued on or after the 1st of April, 2012, the deductions are only allowed for so much of the premiums payable as don't exceed 10% of the actual capital Sum Assured.
5. If the benefit has been claimed under this section, and the policy has been terminated or annulled within 2 years from the commencement of the policy, the benefit will be reversed. This is relevant to all life insurance policies, except ULIPs.
6. If the benefit has been claimed under this section, and the ULIP has been terminated or annulled within 5 years from the commencement of the ULIP, the benefit will be reversed.

Exemptions:

Section 10 (10D):

1. Any amount received under a life insurance policy qualifies for this deduction. A sum received could be:
   1. Sum allocated by way of bonus
   2. Survival benefit
   3. Maturity benefit
   4. Surrender value
   5. Death benefit
2. This deduction also applies to proceeds and gains from a ULIP.
3. The policy proceeds will be taxable under the following circumstances:
   1. Payouts on annuity or pension plans.
   2. Group life insurance plans sponsored by employers.
   3. Policies bought between the 1st of April 2003 and the 31st of March 2012, whose premium in any year is more than 20% of the Sum Insured.
   4. Policies bought after 1st April 2012, if the premium in any year is more than 10% of the Sum Insured.
   5. Policies bought after 1st April 2013 for disabled people or those suffering from ailments as under Section 80DDB, if premiums on these policies are more than 15% of the Sum Assured.

The conditions above do not apply to death claims, or any amount received on the death of the life insured.

1. There is no cap on maximum deduction allowed under Section 10 (10D).

* The above data is taken from the Income Tax Act, 1961, and tax laws are subject to change. Please check the latest information of tax saving instruments under the abovementioned sections before making any financial decisions. Check with your insurance provider on the tax saving opportunities under various sections before signing your policy document.