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ARN. No. KLI/23-24/E-BB/1201
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Ref. No. KLI/22-23/E-BB/999
Life insurance policies offer significant tax benefits under various sections of the Income Tax Act, 1961, allowing policyholders to save on premiums, health riders, and maturity proceeds.
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.
India’s Income Tax Act of 1961 offers life insurance tax benefits specifically designed for 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.
Life insurance policies offer various tax benefits under the Income Tax Act 1961. Understanding these benefits can help you plan effectively and maximize your savings. Here is a detailed look at the life insurance tax benefits India available under different sections of the ITA.
Section 80C is one of the most commonly used sections for tax-saving investments, including life insurance premiums. Its Deduction Limit is up to ₹1.5 lakh per annum. For policies issued on or after April 1, 2012, the annual premium should not exceed 10% of the sum assured. For policies issued between April 1, 2003, and March 31, 2012, the limit is 20%.
While Section 80D primarily covers health insurance premiums, it also includes premiums paid for health riders attached to life insurance policies. The deduction limit is up to ₹25,000 per annum (₹50,000 if the insured is a senior citizen).
Section 80CCC allows deductions for contributions to certain pension plans offered by life insurance companies. Its deduction limit is up to ₹1.5 lakh per annum, part of the overall limit under Section 80C. Contributions must be towards a pension plan that provides a periodical annuity or a lump-sum benefit upon reaching a specified age.
Section 80CCE sets the overall limit for deductions available under Sections 80C, 80CCC, and 80CCD. Combined, the total deduction under these sections cannot exceed ₹1.5 lakh per annum.
Section 10(10A) deals with the tax treatment of pension income from life insurance annuity plans. The commuted value of the pension received is exempt from tax. The entire commuted pension is tax-free for government employees. For non-government employees, one-third of the commuted pension is exempt if a gratuity is received; otherwise, half is exempt.
Section 10(10D) provides life insurance tax exemption policies’ maturity proceeds and death benefits. The entire amount received, including bonuses, is tax-free. For policies issued after April 1, 2012, the premium should not exceed 10% of the sum assured. For policies issued between April 1, 2003, and March 31, 2012, the limit is 20%.
Policies provide valuable life insurance tax benefits under the Income Tax Act, of 1961, which can help policyholders save on taxes. However, to claim these benefits, certain eligibility criteria must be met. Here are the eligibility criteria for claiming life insurance tax benefits:
The policy can be in the taxpayer’s, spouse’s, or children’s name. Policies for dependent parents can also qualify.
The deduction is available for premiums paid for the taxpayer, their spouse, children, and parents.
Individuals receiving the maturity proceeds or death benefits from a life insurance policy.
Individual taxpayers investing in pension plans.
Individuals receiving pension income from life insurance annuity plans.
Any individual taxpayer investing in eligible instruments under these sections.
There are certain situations when Section 10(10D) does not apply to the maturity benefits. For policies issued after April 1, 2012, you will not receive the tax benefit on life insurance if your premium towards the life insurance policy exceeds 10% of the sum assured. For policies bought before April 1, 2012, you will not be eligible for the tax benefit if the premium 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 charge 1% Tax Deducted at Source(TDS) on life insurance benefits worth more than ₹1 lakh. The TDS was raised to 5% from the previous 1% in the Union Budget 2019. TDS is also applicable to bonuses received. When filing your tax return, you can 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.
No revisions to the Goods and Services Tax (GST) applied to life insurance policies have been made. For Indian residents residing abroad, an 18% GST waiver on premiums paid for maintaining an active-term insurance policy for NRIs is available. This waiver provides an opportunity to enhance savings on life insurance tax benefits in accordance with the regulations outlined in the Income Tax Act of 1961.
Life insurance providers offer a variety of riders to augment coverage, and these additional features extend beyond mere protection. Policyholders may qualify for supplementary life insurance tax benefits depending on the chosen rider and specific terms.
Life insurance plan riders can contribute to extra tax advantages in the following ways: By incorporating the Critical Illness rider into your term plan, you become eligible for tax deductions under Section 80D.
The premium increases for riders such as Return of Premium selected during the purchase of a term plan. This increment facilitates greater savings under Section 80C. Utilizing an online term insurance calculator can help assess how these riders affect the premium amount.
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.
Several life insurance policies are available, each catering to different needs and circumstances. The most common types include
This policy provides coverage for a specified period. The beneficiaries receive the death benefit if the insured dies within the term. Term life insurance is often the most affordable option, making it a popular choice for those needing coverage for a specific period, such as the duration of a mortgage or until children reach adulthood.
This type of policy offers lifetime coverage. In addition to providing a death benefit, it includes a savings component known as the cash value, which grows over time on a tax-deferred basis. Whole life insurance premiums are typically higher than term life premiums, but the policy provides financial security for the insured’s entire life and can be a useful estate planning tool.
Understanding premiums and their tax implications is crucial for making informed decisions about life insurance.
The cost of life insurance, known as the premium, is influenced by various factors, including the type of policy, the amount of coverage, the insured’s age, health, and lifestyle. Generally, term life insurance has lower premiums than permanent policies like whole or universal life insurance. Premiums can be paid monthly, quarterly, or annually, and some policies offer flexible payment options.
Life insurance premiums are generally not tax-deductible for individuals. However, the death benefit paid to beneficiaries is typically tax-free, providing them with the full amount of financial support intended by the policy. There are exceptions for businesses, where premiums paid for life insurance policies on employees may be deductible as a business expense under certain conditions.
Life insurance policies serve the dual purpose of providing financial security and tax savings. The various sections of the Income Tax Act of 1961 offer substantial life insurance tax benefits on premiums paid, maturity proceeds, and pension income, making life insurance a valuable tool for tax planning. By understanding and utilizing these provisions, taxpayers can effectively secure their family’s future and optimize their tax liabilities.
1
No, you should not only consider life insurance tax benefits while buying a life insurance policy. While tax savings are important, the primary purpose of life insurance is to provide financial security for your family in case of your untimely demise. Consider factors like coverage amount, policy term, premium affordability, and the insurer’s reliability before deciding.
2
You can save up to ₹1.5 lakh per annum in income tax under Section 80C by paying life insurance premiums. This deduction includes all eligible investments and expenses under Section 80C, such as PPF, ELSS, and home loan principal repayment.
3
You will get life insurance tax benefits when your policy matures under Section 10(10D). The maturity proceeds, including any bonuses, are tax-free, provided the premium conditions (10% of the sum assured for policies issued after April 1, 2012) are met.
4
If you stop paying life insurance premiums, your policy may lapse, and you could lose the coverage. Additionally, you may forfeit the premiums paid and lose eligibility for any life insurance tax benefits. Some policies offer a grace period for premium payment and options for policy revival, so check with your insurer.
5
To maximize tax savings, you should consider investing up to ₹1.5 lakh per annum under Section 80C. This includes life insurance premiums and other eligible investments. Additionally, explore other sections like 80D for health insurance and 80CCC for pension plans to increase your tax-saving potential.
6
You can legally reduce your taxes by utilizing various Income Tax Act provisions. Invest in eligible tax-saving instruments under Section 80C, 80D, 80CCC, and others. Also, claim deductions for home loan interest, education loan interest, and other allowable expenses. Consult a tax advisor for personalized tax planning strategies.
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Amit Raje is an experienced marketer who has worked in various Fintechs and leading Financial companies in India. With focused experience in Digital, Amit has pioneered multiple digital commerce in India. Now, close to two decades later, he is the vice president and head of the D2C business department. He masters the skill of strategic management, also being certified in it from IIMA. He has challenged his challenges and contributed his efforts in this journey of digital transformation.
Prasad Pimple has a decade-long experience in the Life insurance sector and as EVP, Kotak Life heads Digital Business. He is responsible for developing user friendly product journeys, creating consumer awareness and helping consumers in identifying need for life insurance solutions. He has 20+ years of experience in creating and building business verticals across Insurance, Telecom and Banking sectors
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
The information herein is meant only for general reading purposes and the views being expressed only constitute opinions and therefore cannot be considered as guidelines, recommendations or as a professional guide for the readers. The content has been prepared on the basis of publicly available information, internally developed data and other sources believed to be reliable. Recipients of this information are advised to rely on their own analysis, interpretations & investigations. Readers are also advised to seek independent professional advice in order to arrive at an informed investment decision. Further customer is the advised to go through the sales brochure before conducting any sale. Above illustrations are only for understanding, it is not directly or indirectly related to the performance of any product or plans of Kotak Life.
