What is the Tax benefit on Life Insurance Premium?
The Government allows a tax deduction for Life Insurance Premium Payment for the sake of people to take a Life Insurance Policy. Also, there are several tax benefits for the maturity amount (the amount that is received back from the Life Insurance Company). The deduction on payment of Life Insurance Premium is available under section 80C.
Life Insurance Tax Deductible (Section 80C)
Section 80C provides deduction in respect of life insurance premia, deferred annuity, contributions to PF, subscription to certain equity shares, etc. paid or deposited in the previous year by the assessee.
- Under Sec 80C, the deduction is available from Gross Total Income.
- Deduction under Sec 80C is applicable only for an Individual or HUF (Hindu Undivided Family).
- The Deduction is available from specified qualifying contributions/investments/payments/deposits made by the assessee (taxpayer) during the previous year.
Maximum limit of Deduction:
- Under Section 80C, the maximum amount deductible is Rs. 1,50,000. It is to be noted that combined Maximum limit of deduction under Section 80C & Sec 80CCC & Sec 80CCD(1) is Rs. 1,50,000.
The Deduction under Sec 80C will be allowed only if the premiums paid up to a maximum of 10% of the SA (sum assured) for a policy issued on or after 1st April 2012. In the case of a policy issued before 31st March 2012, the deduction will be allowed only if the premiums paid up to a maximum of 20% of the SA (sum assured).
In case, the life insurance premium is paid by an Individual:
- Deduction under Section 80C would be allowed on life insurance premium payment for insuring the life of self, spouse and any child of the individual.
- The Deduction is allowable on life insurance premium payment for the child who may be dependent or independent, married or unmarried, male or female.
- This deduction is allowable only for self, spouse and any child of an individual. It is not applicable for on life insurance premium payment for insuring the life of parents or brother/sister.
In case, the premium is paid by Hindu Undivided Family (HUF):
- Deduction under Sec 80C would be allowed on life insurance premium payment for any member of the HUF.
Is tax deduction under Sec 80C is allowed in the year in which life insurance premium became due?
No. Tax deduction under Section 80C of life insurance premium payment is allowed only in the year in which the premium is paid. It is not allowed in the year in which life insurance premium became due.
For example: If life insurance premium is paid in advance for next 3 years, the tax benefit will not be divided in 3 separate years but will be claimed in the year of receipt itself.
What is the Tax benefit on Maturity Amount?
The amount received at the time of maturity from the Life insurance company is exempted from income tax under Section 10(10D) and Section 10(10A)(iii) of the IT Act.
The maturity amount of a life insurance policy is exempted from tax under Section 10(10D) of the Income Act (subject to the provisions of said section).
Section 10 (10A) (iii):
Commuted Pension got from Pension Fund (Pension Plans that are approved by IRDA) are exempted from tax.
Some maturity amounts are not exempted from the income tax. They are,
- The amount that is received under a Keyman Insurance Policy.
- The amount received from Life Insurance Policy that is issued on or after 01-04-2003 (but on or before 31-03-2012), in respect of which the premium payable for any of the years during the policy term exceeds 20% of the actual SA (sum assured).
- The amount received from Life Insurance Policy that is issued on or after 1-04-2012, in respect of which the premium payable for any of the years during the policy term exceeds 10% of the actual SA. (15% in case of a disabled dependent).
Are Life Insurance Death Benefits Taxable?
Life Insurance Death Benefits are not taxable when those death benefits are received as a lump sum by the beneficiaries. Other than a single lump sum, some insurance companies usually offer a choice of payout options. In this case, a portion of these payouts may be considered taxable earnings.
I received the commission for acting as an insurance agent, and TDS deducted at source @ 10%, the commission income is only around Rs.55,000, and I don’t have any other source of income, in this case, which ITR form is to be used?
In the above case, ITR 4 is to be used.
Are Tax benefits allowed for More than one insurance policy?
If you are paying the premium for more than one insurance policy, all those premiums can be included.
Are Tax benefits available for life insurance policy of any insurance company?
You can avail tax benefit for insurance bought from any Insurance company. It is not necessary to have the policy from only Life Insurance Corporation (LIC) to avail tax benefit. Any private players can be considered here.
For more information on Income tax exemptions, please refer, Exempted Taxes.
Is Service Tax imposed on Life Insurance Premium?
All insurance premiums & charges are subject to applicable taxes including service tax, education cess and SHEC (secondary and higher education cess) as applicable under the prevailing tax laws.