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
Deduction is available amounting to Rs. 1,00,000/-.The deduction would be available for life insurance premium paid is restricted to 10% of the actual capital sum assured. Surrender of Plan before premium has been paid for two years will result in reversal of the tax benefit
- Deduction in respect of contribution to pension funds
- Maximum Rs. 1,00,000/-
- 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/-.
- 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
- For normal individuals the maximum deduction is Rs.15,000/- and for senior citizens age 60 years and above the deduction is Rs. 20,000/-.
- Deduction for payment made for preventive health checkup subject to maximum of Rs. 5,000/- (inclusive in the aforesaid limit of Rs. 15,000 or Rs. 20,000)
Additional deduction allowed for individuals for taking health insurance for parents as under:
Where parents are aged below 60 years Rs. 15,000/-
Where parents are aged 60 years & above Rs. 20,000/-
Exemption from the proceeds
Commuted pension: 10(10A)(iii)
One-third of the Value received from Pension fund (Pension Plans approved by IRDA) would be tax-free
- Any sum received from Life insurance policy as maturity proceeds, death benefits. Is tax free subject to fulfillment of the conditions mentioned therein.
- Proceeds of key man insurance is taxable. A keyman policy will remain keyman policy even after assignment of the policy.
- Single premium policies will be taxed as income in the year it is received assuming the premium exceeds 10% of the actual capital sum assured.
- An Insurance policy in respect of which the premium payable for any of the years during the term of the policy exceeds 10 % 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 Men/Women below 60yrs/Sr. Citizen upto 80yrs/ Sr. Citizen above 80yrs)
||Men/Women below 60yrs
||Above 60yrs- below 80yrs
|Gross Total Income
|Deduction u/s. 80C/80CCC
|Deduction u/s. 80D
|Total Taxable Income
|Tax on Income|
|Upto 2.00/2.50/5.00 lakh
|*2.00 lakh - 5.00 lakh
|5.00 lakh - 10.00 lakh
|10.00 lakh - Above
|Add: Education Cess @ 3%
|Total Tax Payable
Note: Income tax rates are applicable for F.Y 2013-14 only.
Basic exemption limit for Men/Women below 60yrs/Sr. Citizen upto 80yrs/ Sr. Citizen above 80yrs is Rs. 2.00 Lakhs, 2.50 Lakhs & 5.00 Lakhs respectively.
- 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 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. Tax provisions provided under the said document are based on our understanding of the provisions and do not provide any tax opinion per se.
- Please consult your tax advisor for taking the final position regarding tax provisions and their applicability. We do not accept any liability arising from the use of this document or opinions expressed herein. The recipients of this material should rely on their own investigations
- Please note that the revised tax benefits and slabs presented in the Union Final Budget 2014 shall be applicable post the Finance Bill 2014 gets passed and is enacted as law.