How to Make the Most of Tax Benefits from Life Insurance, Health Insurance and Pension Schemes?
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In the case of such life insurance policies, maturity proceeds are also subject to excluded earnings. Therefore, one of the safest ways to ensure that your family is still protected when receiving tax benefits is life insurance plans. Health insurance policies also provide you with tax deductions. The premiums charged for a health plan provide you with a deduction. Investing in a pension plan often allows for certain tax benefits, apart from future security and insurance protection.
Read More: Tax Benefits Under Term Insurance Plans in 2021
Tax Benefits from Life Insurance, Health Insurance and Pension Schemes
In the case of life insurance and pension plans, the premiums you pay, and the benefits you receive are both tax-free under different sections of the IT Act, 1961. Health insurance also gives you tax-exemptions.
A. Life Insurance and Pension Plans
1. Premiums Paid (80C)
Life insurance premiums, whether conventional or ULIPs, are eligible for tax exemption under Section 80C of the IT Act, 1961. The maximum permissible deduction is 1.5 lakhs and your premiums must not be more than 10 per cent of your sum assured to claim this deduction. Therefore, if the sum assured by your policy is around 10 lakhs, the premium should be up to 1 lakh to be liable for a deduction of 80c from your taxable income.
2. Premiums Paid (80CCC)
If you purchase a life insurance company pension plan, the premium charged is exempted under this clause. The maximum cap is 1.5 lakhs with effect from the 2016-17 assessment year and includes the limit under Section 80C. The maximum available deduction is therefore limited to1.5 lakhs under Sections 80C and 80CCC combined.
3. Benefits Received (10(10 D))
Any benefit earned from a life insurance plan is tax-free under this section. Under this section, no maximum limit exists. For tax-exemption, any amount of money earned from a life insurance policy is valid. The benefits may be a benefit from maturity, a benefit from death, or a benefit from surrender.
4. Benefits Received (10(10A))
For pension plans, both ULIPs and conventional, this section is important. Under pension plans, you can withdraw 1/3rd of the accrued deferral corpus (also called commute). Under Section 10, the commuted pension is tax-free (10A). As an annuity pay-out, the balance of the corpus is paid and annuities are always taxable.
B. Health Insurance Plans
1. Premiums Paid (80D)
The premiums paid for a health plan gives you a deduction under Section 80D. There is, however, a limit to the amount of deduction which you can claim.
- Policy for yourself and your spouse and children: 25,000
- Policy for your parents: 25,000
- Policy for senior citizen: 30,000
- If your parents are senior citizens: 25000
- Policy for yourself, spouse and children and another policy for your parents: 25000 (your policy) plus 25000 (parents’ policy)
- Parents are senior citizens and you buy a policy for you and your parents: 25000 (your policy) plus 25000 (parents’ policy)
- You and your parents are senior citizens and you buy 2 policies:305000 (your policy) plus 30000 (parents’ policy)
Read More: Tax Benefits Under Section 80D in Health Insurance
Take Away
Insurance is one of the main and important necessities for ensuring your loved ones have a financially balanced and happy life. Thus a life and health insurance plan significantly lowers your taxable income by offering you tax-free deductions. Therefore, if you want your outgoing tax to be reduced, invest in insurance.
