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Getting a life insurance policy is an important financial decision. The primary benefit of buying one is that it can secure your family’s financial needs or cover any mortgage in the event of your death. While the insurance policy’ coverage benefit is passed on to your dependents after your demise, you can avail tax benefits on the premiums paid towards the policy during your lifetime. Here are some tax benefits you can claim on your life insurance policy:
Tax deduction under section 80C of the Income Tax Act, 1961 allows exemption up to Rs. 1.5 lakh per annum for the premium paid towards your life insurance policy. This benefit can also be availed by you on life insurance policies registered in the name of your parents, spouse, or dependent children too. However, the issue date of policy must be kept in mind while claiming tax exemption under section 80C.
The tax deduction is applicable only for the total premium amounting to a maximum of 20 percent of sum assured if the policy issue date is before 31st March 2012, and to a maximum of 10 percent of sum assured if the issue date is after 31st March 2012.
For persons suffering with disability as mentioned in section 80U, or an ailment as stated in section 80DDB, the maximum tax deduction is up to 15 percent of the sum assured, provided the policy is issued after 1st April 2013.
Sub-section 80CCC also offers a facility for tax rebate on money invested in pension plans. So, if you have a pension plan, you can claim up to Rs. 1.5 lakh under sub section 80CCC, provided you are an individual taxpayer.
Under this section, you can avail tax benefits on payouts made for your life insurance policy by the insurer. Payouts like death benefits to your nominee, or survival benefits such as bonus paid to you during your lifetime are eligible for tax exemption under section 10(10D), Income Tax Act, 1961. However, it is worthy to know that there are certain exceptions to tax exemption on these policy payouts as listed below:
Life insurance policies issued between 1st April 2003 and 31st March 2012 cannot claim tax benefits on their payouts, unless it is a death benefit.
For policies issued after 1st April 2012, the tax exemption is not applicable if the total premium paid exceeds 10 percent of the total sum assured.
Tax benefits cannot be availed if the total policy premiums paid during the policy period exceeds 20 percent of the total sum assured.
If your life insurance policy has any health-related riders like critical illness rider, hospital care rider, etc., attached, then you can avail tax benefits on the premium paid towards such riders under section 80D of the Income Tax Act, 1961. You can claim tax benefits for premium paid towards these riders attached to the policies of your parents, spouse, and children too. It would be precautionary to note these few points while claiming tax exemption under section 80D:
The maximum limit of tax deduction that can be claimed against the health riders of life insurance policies must not exceed Rs. 25, 000. If you are paying premiums for a life insurance policy that is in your parents’ name, you would be entitled to an additional tax benefit of Rs. 25, 000. In case your parents are senior citizens and aged above 65 years, the tax benefit that can be claimed would be upto Rs.30, 000.
To avail these tax benefits, you ought to purchase a good insurance plan like those offered by Future Generali Life insurance, in the form of a term plan, traditional savings and protection plan, whole life plan, ULIP, or as a pension plan. It is time that you purchase a life insurance policy that not only secures your family financially, but also helps you accumulate enough tax savings for your lifetime.