What are the tax benefits available to an individual in respect of premium paid on life insurance policies?
Life insurance premium paid by an individual qualifies for a deduction under Section 80C of Income Tax Act, 1961. An individual can claim deduction from gross total income on premium paid for a maximum of Rs 100,000 in each financial year. Amount deductible under Section 80C is equal to:
- 100% of the "qualifying investment", which includes life insurance premium, or
- Rs 100,000, whichever is lower.
Certain investments and contributions have been specified as eligible ones for Section 80C. These investments/ contributions are eligible for deduction from gross total income. And a reduction in gross total income, leads to a reduction in the tax liability. Finally, the deduction limit for Section 80C has been pegged at Rs 100,000 per annum (pa). In other words, investors can make investments/contributions of upto Rs 100,000 every year and reduce their tax liability.
- Payment of life insurance premium
- Contribution to employee provident fund (EPF)
- Repayment of principal amount on housing loan
- Payment of tuition fees
- Investments in Public Provident Fund (PPF)
- Investments in National Savings Certificate (NSC)
- Investments in tax-saving fixed deposits
- Investments in tax-saving mutual funds (ELSS)
- Investments in Infrastructure Bonds
What are the tax benefits available under pension plans?
Premium paid towards a pension plan is eligible for a maximum benefit of Rs 100,000 under Section 80CCC. The said Section 80CCC limit falls under the overall Section 80C limit of Rs 100,000. In other words, the deduction aggregate, under Section 80C, 80CCC and 80CCD cannot exceed Rs 100,000.
Are maturity proceeds on life insurance and pension policies taxable?
The maturity proceeds of life insurance policies are not taxable. However, under pension plans, upto one-third of the maturity amount can be withdrawn in cash and the same is treated as tax-free. An annuity has to be purchased with the remaining two-third amount. Pension receipts from the same will be treated as income in the hands of the assessed and taxed accordingly.
Can tax benefits be claimed if the premium is paid by an individual on his/her spouse's policy?
Tax benefits can be claimed by an individual who pays life insurance premium on behalf of his/her spouse's policy under Section 80C of Income Tax Act, 1961.
If a person discontinues paying premium on his life insurance policy, does he get tax benefits?
If a person stops paying premium amounts on his/her life insurance policy, it amounts to discontinuation of the policy. Hence, he is not entitled to claim any tax benefits.
If a tax-payer discontinues the life insurance policy before premiums have been paid for a period of 2 years from the commencement of the policy, no tax deduction is allowed in respect of any premium paid on that policy in the year in which the policy is terminated.
Further, the amount of tax deduction, allowed for the premium paid in the preceding year, is treated as income and taxable for the year in which the policy is terminated.
If a person, investing in a Unit Linked Insurance Plan (ULIP), terminates his policy, can he claim any tax benefits on the same?
If a person participates in a Unit Linked Insurance Plan (ULIP) and then terminates his participation, he will not be entitled to claim any tax benefits.
What are the deductions available in respect of a medical insurance premium?
Medical insurance premium paid qualifies for deduction under Section 80D as follows:
- Premium paid upto Rs 15,000 (in a financial year) is eligible for deduction from gross total income. In case of senior citizens, the limit is Rs 20,000.
- Assesses who pay medical insurance premium for their parents can claim an additional deduction of Rs 15,000 under Section 80D. In other words, an individual who pays medical insurance premium for himself and his parents will be eligible to claim tax benefits to the extent of Rs 30,000 i.e. Rs 15,000 (for himself) and Rs 15,000 (for his parents).
- Besides, Section 80-DD provides deduction in respect of expenditure incurred on the maintenance and medical treatment, of a dependent who is a person with severe disability. The deduction amount under this Section has been increased from Rs 75,000 to Rs 100,000.