Tax Benefits Under Life Insurance Plans
Table of Contents
A life insurance policy has multiple benefits and the most important benefit is that it ensures your family can maintain their living standards even in your absence. One purchases a life insurance policy only to ensure that his/her family is financially independent in case something unfortunate takes place. You can choose to get cover for certain situations such as diagnosis of a critical illness, accidental death or dismemberment, and make sure that your life insurance policy provides financial support in the desperate times. You can also decide how your family members receive the benefits payable under the life insurance, you can opt for the entire sum assured paid out to your family member as a lump sum amount or in installments as regular income to maintain their daily lifestyle.
You can choose from the life insurance which allows you to customise your own life insurance policy according to your insurance requirements at nominal premium rates. One of the major reasons that people keep investing in life insurance policies are the tax benefits available along the life insurance policies. Life insurance premiums qualify for tax deduction under Section 80C of the Income Tax Act. Also, as per Section 10D, the sum assured received on maturity of the life insurance plan is tax-free.
Tax Benefits Under Life Insurance
Below are the relevant sections related to the Income Tax Act, read the details below to learn more about the tax benefits available with the life insurance policies.
1. Section 80C
Section 80C is precisely about the tax provisions on the premiums paid that the policyholder for his/her life insurance policy. Premiums paid towards life insurance policies qualify for tax exemptions under Section 80C. This is known to be the best life insurance tax benefit for the life insurance policyholders because Section 80C allows total deductions of up to Rs. 1.5 Lakh. For claiming this benefit you need to make sure that the payable premium amount is not more than the 10% of the total sum assured amount. For example, if the sum assured of your policy is Rs. 25 lakh, you need to be paying up to Rs. 2.5lakh to avail this benefit under Section 80C.
2. Section 10(10D):
Section 10(10D) of the Income Tax Act, 1961 precisely talks about the tax exemptions on the benefits receivable from a life insurance policy to the policyholder to his/her family members. There are no minimum or maximum limits under this benefit so any amount receivable under Section 10(10D) qualifies for tax exemption completely. The benefits receivable can be death benefit, maturity benefit or the amount received from surrendering the life insurance policy. If you choose to surrender your life insurance policy you should keep following things in your mind.
- The surrender benefit amount will be tax exempted only if the policy is surrendered after 2 years of completion, this condition is applicable on the traditional life insurance plans with an option of single premium payment option.
- You will be eligible for tax exemption on the surrender benefit amount if the premiums for your life insurance policy have been already paid for 2 years, in case of regular premium payment policy.
- In case you opt for a Unit Linked Insurance Plan (ULIP), you can surrender the life insurance policy only after the 5-year lock in period, to avail the tax benefits.
3. Section 10(10A):
Section 10(10A) of the Income Tax Act, 1961 relates to the benefits receivable by the policyholder from the pension plans, even if that is a part of a traditional life insurance policy, ULIP or any other retirement plan. Under the pension plans you can withdraw one thirds of the sum assured amount for vesting motives, the portion you withdraw becomes tax-free under this Section because the rest of the amount is paid as regular incomes which are not tax-free.
4. Section 80CCC:
Section 80CCC also relates pension plans, precisely about the premiums paid for the pension or annuity plan. In this Section the premiums paid qualify for the tax exemption for up to Rs 1.5 Lakh, and this Section also includes the tax benefits under Section 80C. Under this section if you are paying premiums for a pension plan you can avail tax benefits for upto Rs 1.5 Lakh with combined benefit of Section 80C.
Conclusion
Most people are attracted by the tax benefits that come along with the life insurance policy and this is one of the major reasons that people invest their money in life insurance policies. Knowing that you can save more on life insurance policies now, you would want to invest in life insurance plans so that you can financially secure yourself and your families future. This provides you with a greater sense of security and peace of mind.
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Disclaimer: This article is issued in the general public interest and meant for general information purposes only. Readers are advised not to rely on the contents of the article as conclusive in nature and should research further or consult an expert in this regard.
