What are the Income Tax benefits of Life Insurance plans?
Life insurance policies are a useful tax planning tools as the policy holder is eligible for tax benefits under the Income Tax Act 1961 (Act) of India. Among the multiple modes for saving tax, life insurance is one of the most effective tax planning instruments.
To highlight, there are two types of income tax benefits available to individuals with respect to the savings being made in the Life Insurance policies:
Section 80C(5) - if the insurance policy holder voluntarily surrenders his policy or in case the policy is terminated before 2 years from the date of commencement of policy, then the insured will not receive any benefits on the premium paid, offered under Section 80C of Income Tax Act.
When the premium paid on the policy does not exceed 10% of the sum assured for policies issued after 01 April 2012 and 20% of sum assured for policies issued before 01 April 2012, any amount received on maturity of a life insurance policy or amount received as bonus is fully exempt from Income Tax under Section 10(10D).
Also, included are policies taken after 01 April 2013, on the life of a person with a disability or a disease specified under Sections 80U and 80DDB respectively, where the amount received on maturity is tax-free provided the premium paid does not exceed 15% of the sum assured.
For insurance policies issued on or after 01 April 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.
However, there are few exceptions:
Any maturity amount of life insurance policy or bonus amount received by the beneficiary of the policy in c
To clarify any doubts, the premium paid towards a life cover taken with any insurer that is approved by the Insurance Regulatory and Development Authority of India (IRDAI), is eligible for a Section 80C deduction.
Further, the different types of Life Insurance that helps you save tax are as follows: -
- Term Plan (pure risk cover)
- Unit-linked insurance plan, ULIP (Insurance + Investment opportunity)
- Endowment Plan (Insurance + Savings)
- Money-Back (Periodic returns with insurance cover)
- Whole Life Insurance (Life coverage to the life assured for whole life)
- Child’s Plan (For fulfilling your child’s life goals like education, marriage, etc.)
- Retirement Plan (plan your retirement and retire gracefully)
So, before finalising any life insurance policy, it is imperative to understand the latest information about the various tax-saving instruments under the sections in the Income Tax Act through agents or premium calculator, etc.