When it comes to life insurance policies, one of the primary things that emerge to the forefront is the tax benefits that these policies offer, besides of course, the insurance coverage. It goes without saying that saving on taxes is one of the biggest incentives of purchasing life insurance plans.
Savings on tax with life insurance:
Section 80C: Under Section 80C of Income Tax Act 1961, the insured can enjoy tax benefit on the premium paid towards life insurance policies. The following are some of the major points of Section 80C tax deductions:
1. Tax deduction under Section 80C is available for Hindu Undivided Families (HUF) and individuals.
2. If you pay a premium of up to a maximum of Rs. 1,50,000, you will be eligible for tax deduction
3. Deductions are applicable if the amount of premium that you have paid in a financial year is 20% of the sum assured amount of the policy.
4. However, for policies that were issued after 1stApeil 2012, the tax deductions are applicable of the amount of premium paid in a particular financial year is 10% of the assured sum.
5. According to Section 80C(5) if you as an insurance holder voluntarily surrender your policy or in case of the policy is terminated before 2 years from the policy’s date of commencement, then the insured will not be eligible for any benefits on the premium paid, that are otherwise offered under Section 80C of Income Tax Act.
6. As far as ULIPs are concerned, if the insurance holder opts to surrender his/her policy or if the policy is terminated before 5 years from the date of commencement of the policy, then the insured will not receive any benefits on the premium paid, offered under section 80C of Income Tax Act.
Section 10D: the following are some of the key points:
1. Any amount that is payable to the insured under life insurance policies is applicable for tax deduction. The amount payable can be- allocated sum by way of bonus, maturity benefit, survival benefit, death benefit, surrender value, etc.
2. It is also interesting to note that Section 10D deduction is also applicable to gains and proceeds from a ULIP.
3. You can enjoy tax benefit under Section 10D when the premium paid towards the policy is not more than 10% of the sum assured amount.
4. Any maturity amount of life insurance policy or bonus amount received by the beneficiary of the policy in case of demise of the insured is altogether exempted from tax deduction.
5. Additionally, the life insurance policy purchased for disabled people are eligible for tax exemption under Section 80DDB if the premium amount of the policy exceeds 15% of the sum assured amount.