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THE
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Blog
2 mins Read | 5 Years Ago

Tax Benefits From Life Insurance Plans

Tax benefits of Life Insurance plans

Life is full of uncertainties. Misfortunes can happen to anyone at any time. While there’s no replacing the emotional loss and pain your family suffers if something were to happen to you, what you can do to soften the blow is purchase Life Insurance. A Life Insurance policy provides your family with monetary compensation after your death. The right life cover offers immense financial support to your family.

Another major ancillary benefit offered by Life Insurance is tax reduction. Find out all about the tax benefits offered by a Life Insurance policy in this article. These can be divided into three major classifications. Let’s take a closer look at each:

1. Deductions under Section 80C

Tax deductions under Section 80C are one of the most well-known life insurance tax benefits. Any insurance premiums you pay during the fiscal year, for insuring your life or the life of your spouse and children, are eligible for deductions under Section 80C of the ITA. This deduction is available to both individual taxpayers and HUFs (Hindu Undivided Family). And, you can avail deductions for the insurance premium paid for your child irrespective of whether the child is – a minor, major, married or unmarried.

According to Insurance Regulatory and Development Authority of India (IRDAI), the premium paid for life cover at any insurance company is eligible for tax deduction under Section 80C. For insurance policies issued after 1st April 2012, the premium of the policy should not be more than 10% of the sum assured to be eligible for deduction under Section 80C. For all Life Insurance policies issued before that, the premium amount should not exceed 20% to be eligible.

2. Exemption under Section 10D

The exemption under Section 10D is one of the biggest draws of term plans. The pay outs you receive on the maturity of your Life Insurance policy, death benefits and other bonuses are exempt from taxation under Section 10D of the Income Tax Act. However, remember that the sum you receive is exempt from taxation only if the policy premium paid doesn’t exceed 10% (for policies issued after 1st April 2012) and doesn’t exceed 20% (for policies issued before 1st April 2012).

If the premium you pay exceeds this limit, any sum received from the policy is fully taxable. If you’re looking to save tax while purchasing Life Insurance, look for policies with premiums that don’t exceed this limit.

3. TDS for Life Insurance Policies

According to IRDAI, if the sum received from the insurance policy exceeds Rs 1, 00,000, the insurer will deduct Tax Deducted at Source (TDS) of 1% before paying you. This TDS deduction also applies to any bonus amount you receive from the policy. If the sum received is less than Rs 1, 00,000, no TDS deductions are made. However, you can claim credit for this TDS deduction when you file your Income Tax returns.

Wrapping Up

Choosing the right tax saving insurance plan not only provides you with an immensely beneficial life cover, but also helps you reduce your overall tax burdens. Read the tax benefits offered by various term plans while shopping for the right Life Insurance policy.

 

DISCLAIMER

The contents of this document are meant merely for information purposes. The information contained herein is subject to updation, completion, revision, verification and amendment and the same may change materially. The information provided herein is not intended for distribution to, or use by, any person in any jurisdiction where such distribution or use would (by reason of that person‘s nationality, residence or otherwise) be contrary to law or regulation or would subject lClCl Bank or its affiliates to any licensing or registration requirements. This document is not an offer, invitation or solicitation of any kind to buy or sell any security and is not intended to create any rights or obligations. Nothing in this document is intended to constitute legal, tax, securities or investment advice, or opinion regarding the appropriateness of any investment, or a solicitation for any product or service. Please obtain professional legal, tax and other investment advice before making any investment. Any investment decisions that may be made by you shall be at your sole discretion, independent analysis and at your own evaluation of the risks involved. The use of any information set out in this document is entirely at the recipient's own risk. The information set out in this document has been prepared by ICICI Bank based upon projections which have been determined in good faith by lClCl Bank and from sources deemed reliable. There can be no assurance that such projections will prove to be accurate. lClCl Bank does not accept any responsibility for any errors whether caused by negligence or otherwise or for any loss or damage incurred by anyone in reliance on anything set out in this document. The information set out in this document has been prepared by ICICI Bank based upon projections which have been determined in good faith and sources considered reliable by lClCl Bank. In preparing this document we have relied upon and assumed, without independent verification, the accuracy and completeness of all information available from public sources or which was provided to us or which was otherwise reviewed by us. Past performance cannot be a guide to future performance. 'lClCl ' and the 'I-man' logo are the trademarks and property of lCICl Bank. Misuse of any intellectual property, or any other content displayed herein is strictly prohibited.

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