Tax Benefits From Life Insurance Plans
Life is full of uncertainties. Misfortunes can happen to anyone at any time. While there’s no replacing the emotional loss and pain your family suffers if something were to happen to you, what you can do to soften the blow is purchase Life Insurance. A Life Insurance policy provides your family with monetary compensation after your death. The right life cover offers immense financial support to your family.
Another major ancillary benefit offered by Life Insurance is tax reduction. Find out all about the tax benefits offered by a Life Insurance policy in this article. These can be divided into three major classifications. Let’s take a closer look at each:
1. Deductions under Section 80C
Tax deductions under Section 80C are one of the most well-known life insurance tax benefits. Any insurance premiums you pay during the fiscal year, for insuring your life or the life of your spouse and children, are eligible for deductions under Section 80C of the ITA. This deduction is available to both individual taxpayers and HUFs (Hindu Undivided Family). And, you can avail deductions for the insurance premium paid for your child irrespective of whether the child is – a minor, major, married or unmarried.
According to Insurance Regulatory and Development Authority of India (IRDAI), the premium paid for life cover at any insurance company is eligible for tax deduction under Section 80C. For insurance policies issued after 1st April 2012, the premium of the policy should not be more than 10% of the sum assured to be eligible for deduction under Section 80C. For all Life Insurance policies issued before that, the premium amount should not exceed 20% to be eligible.
2. Exemption under Section 10D
The exemption under Section 10D is one of the biggest draws of term plans. The pay outs you receive on the maturity of your Life Insurance policy, death benefits and other bonuses are exempt from taxation under Section 10D of the Income Tax Act. However, remember that the sum you receive is exempt from taxation only if the policy premium paid doesn’t exceed 10% (for policies issued after 1st April 2012) and doesn’t exceed 20% (for policies issued before 1st April 2012).
If the premium you pay exceeds this limit, any sum received from the policy is fully taxable. If you’re looking to save tax while purchasing Life Insurance, look for policies with premiums that don’t exceed this limit.
3. TDS for Life Insurance Policies
According to IRDAI, if the sum received from the insurance policy exceeds Rs 1, 00,000, the insurer will deduct Tax Deducted at Source (TDS) of 1% before paying you. This TDS deduction also applies to any bonus amount you receive from the policy. If the sum received is less than Rs 1, 00,000, no TDS deductions are made. However, you can claim credit for this TDS deduction when you file your Income Tax returns.
Choosing the right tax saving insurance plan not only provides you with an immensely beneficial life cover, but also helps you reduce your overall tax burdens. Read the tax benefits offered by various term plans while shopping for the right Life Insurance policy.
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