Tax Saving Centre

Life insurance policies can be useful tax planning tools, because the policy holder is eligible for tax benefits under the Income Tax Act 1961 (Act). Though there are multiple modes for saving tax, life insurance is one of the most effective taxes planning instrument. Plans from Life Insurance Companies can be used for protection, long term savings and tax planning. There are two kinds of income tax benefits available to individuals with respect to long term savings being made in Life Insurance policies:

Deductions
80C/80CCC:

  • Benefit is available to Individual assessed and Hindu Undivided Family assessed.
    • In case of individual assessed - Himself/herself, spouse, children of such individual
    • In case of HUF assessed - any member of HUF
  • If the amount of premium paid in a financial year for a policy is in excess of 20% of the actual capital sum assured, then deduction will be allowed only for premiums up to 20% of the sum assured.
  • For insurance policies issued on or after April 01 2012, deduction is allowed for only so much of the premium payable as does not exceed 10% of the actual capital sum assured.(15% of actual capital sum assured in case of person with severe disability or specified ailment).
  • Above benefits shall be reversed if the policy is terminated/cease to be in force within 2 years for traditional products and 5 years for ULIP products after the date of commencement of policy.
  • Sec 80CCE - Maximum amount of deduction that an assessed can claim under Sections 80C, 80CCC will be limited to Rs. 150,000.
    80D
  • Benefit is available to Individual assessed and Hindu Undivided Family assessee.
    • In case of individual assessed - Himself/herself, spouse, dependent children and parents of such individual
    • In case of HUF assessed - any member of HUF
  • The qualifying amounts under Section 80D for self, spouse and dependent children is up to Rs. 15,000/- and additional deduction up to Rs. 15,000/- for the parents. However, a higher amount of up to Rs. 20,000/- is permitted for parents, if they are senior citizens. Assessed is allowed to make any payment on account of preventive health checkups up to Rs. 5,000 within prescribed overall limit.
  • 80DD: Premiums paid for disabled dependent are eligible for deduction up to Rs. 50,000 every year. A higher deduction of Rs. 75,000 shall be allowed, where such dependent is a person with severe disability.

Exemptions
10 (10D):
Any sum received under a life insurance policy, including the sum allocated by way of bonus on such policy will be exempt from tax. However, this rule does not apply to following amounts:
o Sum received under Section 80DD(3), or
o A sum received under a Key man Insurance Policy, or
o Any sum received other than as death benefit under an insurance policy which has been issued on or after April 1 2003 and if the premium payable in any of the years during the term of the policy does not exceed 20% of the sum assured. For insurance policies issued on or after April 01 2012, exemption would be available for policies where the premium payable for any of the years during the term of the policy does not exceed 10% of the actual capital sum assured.(for policies issued on or after 01 April 2013,15% of actual capital sum assured in case of person with severe disability or specified ailment).

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