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Pay 10,000/month for 10 years, Get 1,65,805/Year* for next 15 years.
ARN. No. KLI/23-24/E-BB/1201
Features
Ref. No. KLI/22-23/E-BB/999
Life insurance offers tax-deferred growth on the cash value portion of the policy, meaning your money compounds interest without being taxed until you withdraw it.
Life insurance plans are a great way to reduce your tax burden and save money. Some life insurance policies, such as term life policies, are exempt from taxes, so you would not have to pay taxes on dividends, death benefits, or other payouts.
Buying a life insurance plan is very important for people who have dependent family members. The policy will help you protect the financial future of your parents, spouse, and children. When it comes to finding suitable life insurance coverage, insurance companies in India provide a variety of choices. Along with benefits, there is also some leverage for the life insurance taxation for the policyholders.
Life insurance is a financial product that provides a lump-sum payment, known as the death benefit, to the beneficiaries in the unfortunate case of the insured person’s death. This payment is designed to provide financial protection to the family or dependents of the insured in the event of their death.
India’s Income Tax Act of 1961 offers tax benefits specifically designed for life insurance policies. These benefits cater to all types of policies, empowering you to save on taxes while securing your future and that of your loved ones. Three key sections act as the guardians of these benefits: Section 80C, Section 80D, and Section 10(10D)
Under section 80C of the Indian Income Tax Act, 1961, any premium paid towards a life insurance plan for yourself, your spouse, and your children is tax-deductible. An important point to remember is that to get the benefit for any policy issued on or after April 1, 2012, the premium you pay should be less than 10% of the sum insured.
Section 10(10D) of the Income Tax Act allows term insurance tax exemption on the maturity benefit and bonuses received from your life policy. To be eligible for this income tax deduction, the premium you paid must not be more than 20% of the sum assured for policies issued before April 1, 2012, and 10% for the policies issued after April 1, 2012.
Under Section 80D, individuals can claim a deduction of ₹5,000 for expenditures related to preventive health check-ups. This deduction falls within the overall limit of ₹25,000/₹50,000, depending on the specific case. Furthermore, this deduction is applicable to the individual, their spouse, dependent children, or parents.
There is an 18% GST levied on life insurance premiums. However, some specific situations exist where you might be eligible for a GST waiver or reduction.
With life insurance, you can use your policy’s cash value to take out policy loans and pay for large expenses without paying taxes on the loan amount, which can be an attractive option for those looking to reduce their tax burden. Using a life insurance plan will allow you to reduce your tax liability under the Income Tax Act of 1961. You can receive term insurance tax benefits at certain times throughout the insurance.
The maturity amount received from a term insurance plan is tax-free. You do not have to pay taxes on the maturity amount your term insurance plan receives.
The death benefit received from a term insurance plan is also tax-free. Your beneficiaries will not have to pay taxes on the death benefit from your term insurance plan.
The surrender value received from a term insurance plan is also tax-free. It means you do not have to pay taxes on the surrender value received from your term insurance plan.
There are certain situations when Section 10(10D) does not apply to the maturity benefits. If the premium you paid towards the life insurance policy is more than 10% of the sum assured for policies issued after April 1, 2012, you will not receive the tax benefit. For policies bought before April 1, 2012, you will not be eligible for the tax benefit if the premium paid is over 20% of the sum assured. This rule for the taxability of the life insurance maturity amount is an important one to remember.
Since October 2014, insurance companies have been eligible to implicate 1% Tax Deducted at Source(TDS) on the life insurance benefit if the amount is more than ₹1 lakh. It was raised to 5% from the previous TDS of 1% in the Union Budget 2019. TDS is also applicable to the bonuses received by you. When filing your tax return, you are entitled to receive credit for the TDS the insurer charges.
For a single premium payment life insurance policy, the premium paid is often more than 10% of the sum assured. Hence, the maturity benefit of the policy will be taxable. For example, if you bought a policy with a maturity value of ₹1.1 lakhs on September 16, 2013, the single premium will be approximately ₹45,000, over 10% of the sum assured. If you surrendered the policy on September 16, 2019, the insurer would charge 5% TDS on the net maturity proceeds.
Life insurance providers offer a variety of riders to augment coverage, and these additional features extend beyond mere protection. Policyholders may qualify for supplementary tax benefits depending on the chosen life insurance rider and specific terms.
No revisions to the Goods and Services Tax (GST) applied to life insurance policies have been made. For Indian residents residing abroad, there is an option to avail of an 18% GST waiver on premiums paid for maintaining an active-term insurance policy for NRIs. This waiver provides an opportunity to enhance savings on life insurance plan tax benefits in accordance with the regulations outlined in the Income Tax Act of 1961.
It is important to realize that while tax advantages on premiums and payouts may be an added benefit of life insurance, they are not the main goal of having a policy. The main purpose of life insurance is to provide your dependents with financial security in the event of your passing. Therefore, you must first comprehend a policy’s ins and outs in order to make the best decision.
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Pay 10,000/month for 10 years, Get 1,65,805/Year* for next 15 years.
ARN. No. KLI/23-24/E-BB/1201
Features
Ref. No. KLI/22-23/E-BB/999