Simplifying Life Insurance in India
Tax Deductions on Life Insurance Premiums & Benefits
Life insurance is the most critical policy as it protects policyholders and their beneficiaries from financial hardships. The tax rate payable varies depending upon the policy's terms and conditions and jurisdiction.
Keep reading further to know more detailed information regarding tax benefits under life insurance premiums.
Table of Contents
Life Insurance Tax Benefits Under Different Income Tax Act Sections
The life insurance tax benefits are different under each Income Tax Act (ITA) section. It is as follows:
Tax Deductions
Under section 80 C, the limit for every individual's deduction is ₹1.5 lakhs per year. In this, premiums for the policyholder and their family are also included.Tax Exemption on Proceeds
Section 10 (10D) allows exemptions from tax for proceeds received via life insurance policies, either in the form of maturity proceeds or death benefits, for which certain conditions regarding the limits of premiums are fulfilled.
The maximum premium for policies issued after 1 April 2012 is 10%, while the maximum premium for policies issued between 1 April 2003 and 31 March 2012 is 20%.
TDS on Payments
A 5% tax deducted at source (TDS) has also been applied to insurance payments made on or after 1 October 2014 for payments over ₹1 lakhs. Also, if the premium paid under a policy issued on or after April 1, 2023 (other than ULIPs) is more than ₹5 lakhs in a year, then it would become taxable.Section 80 D
This section enables individuals to get tax benefits when making premium payments for health insurance. The maximum benefit is ₹25,000 per year. Moreover, it can increase up to ₹1,00,000 if the policyholder or their parents are above 60.Section 80 CCC
This section allows policyholders to get tax benefits upon payment towards the premium of pension/retirement plans. The maximum deduction is ₹1.5 lakhs every year.Key Considerations To Keep in Mind When Claiming Life Insurance Tax Deductions
Understand Deduction Limits
The maximum life insurance premiums deducted from the plan under Section 80C shall be ₹1.5 lakhs per year and are different under each section.Assure Continuity of Policy
To be eligible for deductions, taxpayers must continue to pay premiums throughout the insurance policy's duration. If they are late, the policy may fail, and there will be no deduction for that financial year.Beneficiaries’ Tax Deduction
Section 10(10D) states that beneficiaries' death benefits are generally tax-exempt, even if premium payments exceed certain thresholds. However, the maturity funds can be subject to taxes if the premium is higher than permitted.Implications of TDS
Life insurance policies that are not exempt from Section 10(10D) will deduct 5% TDS before payment if the maturity sum of the policy is over ₹1 lakhs. Policyholders should be informed of this before filing their income tax returns.Eligible Insurers
Any premiums paid to insurers authorised by the Insurance Regulatory and Development Authority of India (IRDAI) are eligible for deduction under Section 80C. This section covers both public and private insurers.Taking Riders into Account
If riders' premiums for life insurance plans fulfil the exact requirements as the primary policy, they may also qualify for Section 80C deductions.Premium Capping
An assured limit of 10% of the total insured is valid for policies taken after April 1, 2012. The limit is 20% for policies taken between April 1, 2003, and March 31, 2012. A 15% limit was placed on policies that added one or more individuals with disabilities.Documents
Keep proven copies of supporting documents for all insurance policies taken concerning the amount paid as premium and arrange for receipts when returning tax every year for income tax returns.Tax-free returns
A policy's maturity or death benefits usually fall under Section 10(10D) of the tax laws, which means no tax is payable on such amounts when the premium conditions are satisfied.Are Life Insurance Premiums Tax Deductible for Self-Employed?
Yes, self-employed individuals qualify under Section 80C of the Income Tax Act to deduct life insurance premiums up to ₹1.5 lakhs in one financial year. The deduction applies to the premium payments made for life insurance up to self, spouse, and their children.
They are also likely eligible for Section 80D as self-employed taxpayers who avail themselves of this additional deduction based on premium payments for health-related riders. Self-employed individuals must file their ITR and declare the payments of premiums therein as required to enjoy deductions.
Moreover, for policies taken out after 1 April 2012, the annual premium paid must exceed 10% of the sum assured to be eligible for tax benefits. Additionally, premium payments that exceed ₹5 lakhs within a financial year are not entitled to tax credit and are subject to taxation on maturity benefits except relating to death benefits.
Can You Deduct Life Insurance Premiums as a Business Expense?
Are Life Insurance Premiums Deductible as Medical Expenses?
Medical expenses are tax deductible under the section 80 D as follows:
Individuals may claim a deduction for themselves, their spouse, dependent children, and parents, and the maximum deduction limit is ₹25,000 per year, and for senior citizens, the limit is ₹50,000.
What Conditions Apply to Deducting Life Insurance Premiums as Medical Expenses?
These are the crucial conditions applicable to the deduction of life insurance premiums as medical expenses:
Eligible taxpayers: Individual taxpayers and Hindu Undivided Families (HUFs) can claim a tax deduction below Section 80D of the Income Tax Act for contributions paid on medical health insurance.
Scope: The deduction could be for illness insurance contributions paid by using them for themselves, a spouse, based youngsters, and dad and mom. This includes both individual policies and family plans.
FAQs on Life Insurance Premiums Tax Deductible
Is it possible to deduct life insurance policy premiums from Section 80C?
How much is the tax exemption under life insurance coverage?
Is the life insurance premium paid for the parents tax deductible?
Can I claim both 80 C and 80 CCD at the same time?
What is TDS on life insurance policy proceeds?
Which is the best life insurance policy for tax benefits?
Is it possible to claim parents’ life insurance as a tax deduction?
Can I claim life insurance under the new tax regime?
Important Guides Related to Life Insurance
Disclaimer
The information provided on this page is for informational purposes only and is sourced from publicly available resources. It is not intended to serve as professional advice or a recommendation.
All policy details, benefits, coverage, premiums, and other figures mentioned are illustrative and subject to change based on individual requirements, eligibility, product terms, regulatory changes, and other factors. Guaranteed returns, if applicable, are subject to policy terms, conditions, and timely premium payments.
Customers are advised to review the policy documents, terms and conditions, and consult relevant experts (such as financial or tax advisors) before making any decisions. For a detailed disclaimer, please refer to our Life Insurance Disclaimer.
Download Policy Wordings
Click here for Life Insurance Policy Wordings.Disclaimer
- This is an informative article provided on 'as is' basis for awareness purpose only and not intended as a professional advice. The content of the article is derived from various open sources across the Internet. Digit Life Insurance is not promoting or recommending any aspect in the article or its correctness. Please verify the information and your requirement before taking any decisions.
- All the figures reflected in the article are for illustrative purposes. The premium for Coverage that one buys depends on various factors including customer requirements, eligibility, age, demography, insurance provider, product, coverage amount, term and other factors
- Tax Benefits, if applicable depend on the Tax Regime opted by the individual and the applicable tax provision. Please consult your Tax consultant before making any decision.
Latest News
Read More
Renew & Download Policy Document, Check Challan, Credit Score, PUC & more
Anytime, Anywhere. Only on Digit App!
Rated App
Rated App
Scan to Download
