Tax Benefits

A Life Insurance policy is one of the most preferred investment avenues in India as it helps in tax planning. However, when you invest in a life insurance policy, don’t measure it in terms of “tax benefits”; measure it in terms of “life benefits” that it has to offer.

Your life is your greatest investment and your family is your biggest asset. And when you invest in a life insurance policy you ensure a financially secured future for your loved ones. Hence, before you invest in anything, invest in your life.

Your Life insurance policy offers you dual benefits:

	Comprehensive financial protection against unforeseen events for your family
	Tax benefits on your monetary investments

By investing in a Life Insurance policy, you can avail the following benefits under the Income Tax Act, 1961:

Deductions from gross income

Sec 80C

Deduction is available amounting to Rs. 1,00,000/-

The benefit for life insurance premium u/s 80 C is restricted to 20% of the actual capital sum assured. Surrender of Plan before premium has been paid for two years will result in reversal tax benefit.

80CCC

	Deduction in respect of contribution to pension funds
	Maximum Rs. 1,00,000/-
	Flexi Secure Life Retirement Plan and Freedom 58 from Birla Sun Life Insurance provide all the benefits. You can also withdraw money as and when needed.
	Surrender/Withdrawal will be subjected to tax.
	Pension received will be subject to tax.

Sec 80 CCE

Under Section 80CCE, the overall limit for deduction u/s 80C, u/s 80CCC and u/s 80CCD is Rs. 1,00,000/-.

80D

	Deduction in respect of medical insurance premium
	Individual or HUF whether resident or non resident
	Premium can be paid by any mode other than cash
	Premium paid out of income chargeable to tax.
	For normal individuals the maximum deduction is Rs.15,000/- and for senior citizens age 65 years and above the deduction is Rs. 20,000/-.


Additional deduction allowed for individuals for taking health insurance for parents as under:

Where parents are aged below 65 years	Rs. 15,000/-

Where parents are aged 65 years & above	Rs. 20,000/-

Exemption from the proceeds

Commuted pension: 10(10A)(iii)

One-third of the Value at vesting date would be tax-free

10(10D)

	Any sum received from Life insurance policy as maturity proceeds, death benefits.
	Proceeds of key man insurance is taxable
	Single premium policies will be taxed as income in the year it is received assuming the premium exceeds 20% of the sum assured.
	An Insurance policy in respect of which the premium payable for any of the years during the term of the policy exceeds 20 % of the actual capital sum assured will not be eligible for Sec 10(10D) benefit. This will not be applicable for any sum received on the death of a person.

Illustration (For resident individual/Woman/Sr. Citizen)


Particulars	Normal	Woman	Sr. Citizen

Gross Total Income	600,000	600,000	600,000

Deduction u/s. 80C/80CCC	100,000	100,000	100,000

Deduction u/s. 80D	15,000	15,000	20,000

Total Taxable Income	485,000	485,000	480,000

Tax on Income

Upto 1.50/1.80/2.25 lakh	-	-	-

1.50 lakh - 3.00 lakh	15,000	-	-

1.80 lakh - 3.00 lakh	-	12,000	-

3.00 lakh - 5.00 lakh	37,000	37,000

2.25 lakh – 3.00 lakh	-	-	7,500

3.00 lakh to 5.00 lakh			36,000

	52,000	49,000	43,500

Add: Surcharge	-	-	-

Add: Education Cess @ 3%	1,560	1,470	1,305

Total Tax Payable	53,560	50,470	44,805

Note: Income tax rates are applicable for F.Y 2008-09 only.

Disclaimer

	The above are extracts from the Income Tax Act, 1961. Please note that tax laws are subject to change and hence before placing reliance on the above, the latest version of the above section should be checked up. It should also be noted that the change in tax laws could have retrospective effect also.
	This information should be not be construed as tax, legal or investment opinion from BSLI. BSLI would not be responsible in any manner for decisions made on the basis of above information.
	Please consult your tax advisor for specific suitability of taxation on insurance products.