Life insurance, apart from offering protection against the uncertainties of life, is also an excellent investment option for getting tax benefits. Read on to know more about the tax deduction you can get from life insurance policy under different sections.
A life insurance policy is a must-have for all, especially if you are a married person and have dependent children on you to survive. Even if your spouse is a working professional, it would be a good idea to purchase a robust life insurance policy to ensure financial protection to your family members. Many insurance companies in India offer a variety of plan for different age group and to meet the specific needs of the policyholder.
While most people buy life insurance plan mainly to get protection from life uncertainties, a lot of people also invest in a life insurance plan to save taxes. Here are the deductions you can avail from a life insurance policy.
Deductions under Section 80C
If you have paid the premium towards the policy to protect yourself and your spouse and children, such payments are eligible for deduction under Section 80C of the Indian Income Tax Act. You can claim deduction irrespective whether the children are major or minor, married or unmarried, dependent or independent. However, to claim the deduction, your premium should not be more than 10% of the sum assured of the policy (for policies that are issued after 1st April 2012). If your life insurance policy is issued before 1st April 2012, the premium should not be more than 20% of the sum assured to be eligible for deduction.
Additionally, if you have purchased a life insurance policy after 1st April 2013 to cover of an individual who has a disability, the premium should not be more than 15% of the sum assured to get a tax deduction. The maximum deduction you can get form premium paid towards life insurance policy under Section 80C is 1,50,000.
An important thing to note is that under Section 80C (5) if you voluntarily surrender your policy or if your policy gets terminated within two years from the date of purchase, then you are not eligible to receive any tax benefit on the premium paid.
Deduction under Section 10(10D)
When you pay the premium for the policy that does not exceed 10% of the sum assured for the policy issued after 1st April 2012 and 20% for the policy issued after 1st April 2012, any amount you receive after maturity of the policy is fully exempted from tax under Section10(10D).
Also, for policies that are issued after 1st April 2014 for a person with a disability or any other diseases as specified under Sections 80U and 80DB, the amount received on maturity is exempted from tax provided the premium paid is not more than 15% of the sum assured.
Deduction under Section 80D
If you have purchased any add-on cover or riders such as hospital care cover, or critical illness cover, you can get tax deduction under Section 80D of the Indian Income Tax Act, 1961. If the insurer members are less than 60 years, the maximum deduction you can get under the section is Rs. 25,000. If you or any of the insured member are aged more than 60, the maximum deduction you can get is Rs. 50,000.
If you are looking for ways to reduce your tax liability, investing in a life insurance policy could be an excellent way to get a tax deduction.