Tax Benefits of Life Insurance

The Income Tax Act of India 1961 has provisions for taxpayers to claim tax benefits if taken a life insurance policy. These are applicable to only individuals and Hindu Undivided Families (HUF).

Under Section 80C/80CC and 80CCE

  • Maximum amount deductible is Rs 1.5 lakh.

  • Deductions are only on premiums up to 20% of sum assured on conditions the premium amount in a financial year is more than 20% of actual sum assured.

  • For policies on or after April 1, 2012, deduction will be for only so much of the premium payable which does not exceed 10% of the actual capital sum assured.

  • For persons with severe disability or specified ailment, for policies on or after April 1, 2013, deduction will be for only so much of the premium payable which does not exceed 15% of actual capital sum assured.

  • Benefits will be reversed if policy ceases to be in force within two years for traditional products and five years for ULIPs after date of commencement of policy.

Under Section 80D

  • Qualifying amounts for an individual assessee for self, spouse and dependent children is up to Rs 25,000 and for parents there is an additional deduction of Rs 25,000. If parents are senior citizen then qualifying amount is Rs 30,000.

  • Assessees can make any payment on account of preventive health check-ups up to Rs 5,000 within prescribed limit. If senior citizens over 80 have no insurance plans then medical expense of up to Rs 30,000 can be claimed as exemption.

Under Section 80DD

  • Tax exemption of up to Rs 50,000 per year on premiums paid for disabled dependent.

  • If dependent is a person with severe disability then deduction amount will be Rs 75,000.

Under Section 10 (10D):

Any sum received under a life insurance plan, such as bonus, qualifies for deduction. However exemption does not apply to:

  • Money received under Section 80DD(3)

  • Money received under Keyman Insurance Policy

  • Payouts on annuity or pension plans

  • Policies for disabled dependents

  • Group life insurance plans sponsored employers

  • Policies bought after April 1, 2012, if premium in any year exceeds 10% of sum insured.

  • Policies bought for disabled or those suffering from ailments under Section 80DDB after April 1, 2013, if premiums exceed 15% of sum assured.