Life Insurance Tax Benefits

Apart from financial protection, life insurance helps in reducing your tax liability under the Income Tax Act, 1961. The premiums that you pay and the benefits you get from a life insurance policy are eligible for deductions and exemptions^# under multiple sections. These provisions encourage individuals to secure their family’s future while managing taxes efficiently. In this article, we will explore the key life insurance tax^# benefits that a policyholder can avail.

 

Which Life Insurance is Tax-deductible?

Premiums for term insurance, endowment policies, whole life insurance plans, money-back policies, pension plans and ULIPs of the policyholder get deductions under Section 80C of the Income Tax Act. Deductions can be allowed for policies covering self, spouse, or dependent children. These advantages will make life insurance a very useful means towards a tax-saving strategy.
 

What are the Tax Benefits of Life Insurance?

Life insurance provides tax^# advantages on both premium payments and the policy proceeds under:
 

Section 80C  

In a financial year, you are entitled to claim tax^# deductions up to 1.5 lakh in Section 80C on the premium you pay on the life insurance plans, such as term insurance, ULIPs, endowment plans, whole life, or money-back plans. Policies for self, spouse, or any dependent children are considered. This section basically reduces taxable income while considering the option of financial safety.

Section 80CCC  

Section 80CCC provides tax^# deductions on payments made towards annuity plans from the Life Insurance Corporation of India or any other approved insurer. These plans are made for a regular income after retirement in the form of pensions. The maximum deduction provided under this section is ₹1.5 lakh and is included in the overall ceiling limit stipulated under Section 80C. It encourages early retirement planning.

Section 10(10D)  

Section 10(10D) of the Income Tax Act excludes amounts paid from a life insurance policy -maturity amount, bonus, surrender value, or death benefit - from being taxed as income if certain specified conditions are met. This exclusion is an important privilege so that beneficiaries receive the entire benefit of their life insurance policy, without tax being deducted.

What are the life insurance tax benefits under different sections of the Income Tax Act (ITA), 1961?

Under the Income Tax Act, 1961, sections such as 80C, 80D, and 10(10D) allow deductions^# on premiums and exemptions^# on payouts.

Here are the key points to understand the life insurance tax^# benefits available under Section 80C:

1. Section 80C provides tax^# deductions on premiums paid towards eligible life insurance policies. It encourages individuals to invest in insurance while reducing taxable income.

2. Premiums paid for policies like term plans, ULIPs, endowment, and money-back plans qualify for deduction.

3. The maximum deduction limit under Section 80C is ₹1.5 lakh per financial year.

4. The policies purchased for self, spouse, or dependent children can avail of the deduction.

5. The premiums charged should not exceed 10% of the sum assured for policies issued after April 1, 2012.

If the policy is surrendered or terminated early, earlier deductions claimed may be reversed.

 

Life insurance tax benefit under section 80D  

This section provides deductions for premium amounts paid towards health-related riders or benefits over and above life insurance plans. The rationale behind such deductions is to encourage medical protection along with life cover.

1. Deductions are allowed for health-related riders under life insurance plans.

2. Individuals below 60 years can claim up to ₹25,000 for self, spouse, and dependent children.

3. The deduction extends up to ₹50,000 for senior citizen parents.

4. Only non-cash payment methods, such as online or cheque payments, are entitled to this deduction.

5. Section 80D benefits are over and above the limits available under Section 80C, providing additional tax^# savings.

Payments eligible for deductions under section 80D  

Deductions are also available for certain types of health protection-related payments under life insurance policies. These enhance the total value of your policy.

1. Premiums paid for health riders like critical illness or hospital cash are eligible under this section.

2. Preventive health check-ups up to ₹ 5,000 are included in the overall deduction limit.

3. Payments made for self, spouse, dependent children, and parents qualify under Section 80D.

4. Higher limits of deduction are allowed for premiums paid towards senior citizen parents.

5. Premiums paid in cash are not deductible under this section.

Life insurance tax benefit under section 10(10D)  

Section 10(10D) fully exempts the proceeds from life insurance policies from taxation, thus ensuring that the financial benefits reach the beneficiaries without any burden of tax.

1. Maturity amount, death benefit, and bonuses received are all exempt under this section.

2. The premium should not exceed 10% of the sum assured for policies issued after April 1, 2012.

3. ULIP policies entailing annual premiums higher than a threshold limit – i.e., ₹ 2.5 lakh – do not qualify.

4. Death benefits paid to nominees remain fully tax-free^#.

What are the tax benefits on riders of life insurance?  

Riders are additional features attached to a life insurance policy that enhance the cover. Besides giving extra protection, riders may also provide tax-saving opportunities under specified sections of the Income Tax Act.

Following are some of the major tax ^# benefits available on life insurance riders:
 

1. In the case of critical illness or medical benefit riders, the premium paid under such health-related riders is considered for a tax^# deduction under Section 80D. The maximum deduction allowed is ₹25,000 annually, which may go up to ₹1,00,000 in case the taxpayer or his parents are senior citizens.

2. You will have to pay an increased premium amount if you choose a return of premium rider, and that also means claiming higher deductions under Section 80C.

3. Riders not only reinforce the monetary coverage provided by your policy but also make you eligible to receive additional tax^# benefits.

Please review your policy documents to understand the exact tax implications and consider all terms and conditions which are applicable.

What is TDS on a life insurance policy?  

Payouts from life insurance that are not exempt under Section 10(10D) are subject to Tax Deducted at Source (TDS).

This is how it works:

1. Before releasing funds, insurers deduct 5% TDS from the income component (payout less total premiums paid) if your payout exceeds ₹1 lakh and isn't exempt.

2. TDS is not applied to payouts under ₹1 lakh, but the income is still subject to taxes.

3. TDS exemptions are applicable to:

4. Amounts received under Sections 80DD(3) or 80DDA(3) for policies in which premiums do not surpass 10% (issued after 2012) or 20% of the sum assured (issued 2003-2012).

Keep in mind that TDS does not apply to pension or annuity payments; it only applies to life insurance payouts.

Eligibility criteria to claim life insurance tax benefits  

In accordance with the Income Tax Act, 1961, life insurance tax ^# benefits may be availed by individuals and Hindu Undivided Families (HUFs). The entitlements are not only on the payments made for the policy but also on the amount received at maturity or any interest generated on the policy.

The tax^# benefits can be claimed for the following beneficiaries:
 

• Self: Premiums paid for your own life insurance policy.
• Spouse: Premiums paid for your husband’s or wife’s life insurance policy.
• Parents: Contributions made towards your parents’ life insurance policies.
• Children: Premiums paid for the life insurance policies of dependent or independent children.
   

These provisions ensure that life insurance not only provides financial security but also contributes to long-term tax efficiency for families.

Choose TATA AIA tax-saving^# insurance plans  

TATA AIA understands your concern regarding taxes and offers a range of savings-cum-life insurance plans and health insurance policies that help you save taxes^#, insure your life, protect your family’s future, and also build your corpus.

Savings Solutions – Savings-cum-Life Insurance Plans  
 

• TATA AIA Life Guaranteed Return Insurance Plan (UIN: 110N152V07)  
• TATA AIA Life Insurance Guaranteed Monthly Income Plan (UIN: 110N147V02)  
• TATA AIA Life Insurance Diamond Savings Plan (UIN: 110N133V02)  
• TATA AIA Life Insurance Gold Income Plan (UIN: 110N131V02)  

 

Each of these plans offers life insurance income tax exemption^# and offers a different financial security benefit. Understand your needs and choose an insurance plan that best fits your requirements.

Conclusion 

Life insurance offers you financial security for your loved ones, as well as allows you to plan taxes efficiently. Income Tax Act 80 C, 80 D and 10 (10 D) provide individuals with deductions and exemptions* on proceeds of the policy and premiums. Understanding these provisions can help you make informed decisions and maximise your benefits. However, it is always advisable to review your policy terms and stay updated with the latest tax regulations to ensure compliance and effective financial planning.