Over the years, Life Insurance in India haspredominantly been perceived as a Tax Planning Tool, rather than a method of financial planning. The tax structure in India, encourages this practice by; providing Tax Rebates on investment in Life Insurance and by exempting the resultant income up to a specified limit.

Let’s understand these advantages in detail.

Deductions – (Expenses allowed to be deducted from Income)

  • Section 80 C – Deduction on investment in Life Insurance Policy   
    • Applicability – Individuals (Self, spouse and dependent children) and HUF (any member)
    • Maximum deduction allowed (including 80CC and 80CCE) – Rs.1,50,000
    • If premium paid is >20% of sum assured, deduction allowed is up to 20%
    • For policies issued on or after the 1st April 2012, the deduction allowed is Premium not exceeding 10% of the actual Capital Sum Assured.
    • If after claiming a deduction, the Policy is terminated or annulled within 2 years or the ULIP is terminated or annulled within 5 years, of commencement of the policy/ULIP, the benefit will be reversed and will be liable for tax
  • Section 80 D – Deduction for premium paid for Medical Insurance
    • Applicability – Individuals (Self, spouse and dependent children) and HUF (any member)
    • Qualifying amounts for deduction are;
      • For self, spouse, and dependent children: Upto Rs.25,000
      • For Parents: Additional Rs. 25,000 (Rs. 30,000 if Senior Citizens)
    • Medical expenses incurred for a super senior citizen (80+) not holding an insurance policy: Upto Rs. 30,000
    • Preventive Health Check-ups upto Rs. 5,000 are also allowed as deduction
  • Section 80DD – Premiums Paid for Disabled Dependents
    • Ordinary circumstances: Upto Rs.50,000 per year.
    • With severe disabilities: Upto Rs.75,000 per year

Exemptions – (Income exempt from tax)

  • Section 10(10D):
    • Sum allocated by way of bonus
    • Survival benefit
    • Maturity benefit
    • Surrender Value
    • Death benefit, etc.
    • Proceeds and gains from a ULIP
  • There is no upper limit on the maximum deduction allowed u/s 10(10D)

The following receipts are however exempt under Section 10(10D) i.e. are taxable

  • Pay-outs on annuity or pension plans
  • Under Insurance policies for disabled dependents
  • Group life insurance plans sponsored by employers (i.e. Keyman insurance policy)
  • Where premium on policies, bought between the 1-04-2003 and 31-03-2012, exceeds 20% of the Sum Assured
  • Where premium on policies, bought on or after 1-04-2012 exceeds 10% of the Sum AssuredWhere premium on policies, bought under Section 80DDB (for disabled or people suffering from ailments) after 1-04-2013, exceeds 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, i.e. these amounts shall remain exempt irrespective of the above.

The Tax Slabs for the Assessment Year 2018-2019

Individual Tax Payers & HUF (< 60)

Senior Citizens (60>80)

Super Senior Citizens (>80)

Tax Rate

Income Slab

Income Slab

Income Slab

Upto Rs 2,50,000

Upto Rs 3,00,000

Upto Rs. 5,00,000

Nil

Rs 2,50,000 – Rs 5,00,000

Rs 3,00,001 – Rs 5,00,000

5%

Rs 5,00,001 – Rs.10,00,000

Rs 5,00,001 – Rs.10,00,000

Rs 5,00,001 – Rs.10,00,000

20%

Rs 10,00,001 and above

Rs 10,00,001 and above

Rs 10,00,001 and above

30%

Points to remember –

  • Understand your own policy document thoroughly and speak to your Insurance provider to know exactly what tax saving opportunities are available for you.
  • Tax laws are subject to change, and one must go through recent tax amendments before making any financial decision.

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