HOW LIFE INSURANCE CAN HELP YOU SAVE TAX? l tax on lic premium

Life Insurance Policy has become one of the foremost and necessary requirements of ensuring a financially stable and comfortable life for your loved ones after your demise. Apart from future safeguard in the form of insurance cover, it also provides certain tax benefits on both the payment of premium amount and the maturity amount. Section 80C and Section 10D of the Income Tax Act, 1961, provides the tax benefits on Life Insurance.

Section 80C of the Income Tax Act, 1961 provides certain deductions which can be subtracted from the gross total income to calculate the Net Income. It covers the premium paid on life insurance also. Thus, an individual or HUF can claim deduction on the premium amount paid towards the Life Insurance Policy up-to the extent of Rs.1.5 Lakh as per the provisions of Section 80C.

This deduction is available only when the taxpayer has opted for the old tax regime. (Click here to read more on Old vs. New Income Tax Regime Which one is better for you?)
Moreover, this deduction is allowed to the taxpayer when it is taken for the taxpayer or spouse or child.
As per section 80C(5), if the insured person voluntarily surrenders the policy or terminates the policy before the expiry of 2 years from the start of policy then the insured person shall not be eligible for tax benefits on premium paid given under Section 80C of the Income Tax Act.

Whereas, Section 10(10D) of the Income Tax Act, 1961, makes the entire amount of maturity income of Life Insurance tax free subject to certain conditions.

According to this section, the maturity amount of Life Insurance is always tax-free except under following conditions –

When Life Insurance Policy is taken after 1^st April’2003 but on or before 31^st March’2012 –

If the total premium payable towards the Life Insurance in a relevant Financial Year exceeds 20% of the total actual sum assured, then the policy proceeds shall be absolutely taxable in the hands of insured.

When Life Insurance Policy is taken on or after 1^st April’ 2012,

The threshold limit has been changed from 20% to 10% from 1^st April 2012. Therefore, If the total premium payable towards the Life Insurance in a relevant Financial Year exceeds 10% of the total actual sum assured, then the policy proceeds shall be absolutely taxable in the hands of insured.

Whereas, if the insured person suffers from any severe disease or disability which is specified under Section 80DDB and Section 80U the IT Act, 1961 respectively, and the policy was taken on/after 1^st April 2013, then the threshold limit shall be 15% instead of 10%.

Provided that, if the policy amount is received by the nominee upon the death of the insured then the policy amount shall be tax-free even if the premium exceeds the threshold limit prescribed in above 2 paragraphs.

Conclusively, Life Insurance will give you tax benefits along with the financial security for your family members in future after upon your unfortunate death.

Generally, it is mistaken that the Life Insurance tax benefits are available only when it is taken from LIC. However, it is absolutely false as the Life insurance tax benefits are always available irrespective of insurer.

If you are looking for a Team of Chartered Accountants to file your ITR and to guide you then contact your Trustworthy Advisors Manthan Experts by dialing at +91-9643-969-969 or mail at info@manthanexperts.com.