Besides being a financial safety net for your family, insurance policies are great tax saving tools. This makes them an essential component of a healthy financial portfolio. With the various tax benefits of life insurance policies, you can plan for your long-term financial goals in a tax-effective way. There are two types of tax benefits that can be availed with life and health insurance policies viz. deductions and exemptions. The details of the tax benefits applicable for insurance policies are explained below.
Premium paid for Life insurance policy
Deduction under section 80C
- You can claim a deduction under the section 80C, as an individual or as a Hindu undivided family
- You can claim a maximum of Rs. 1,50,000 under the sections 80C
- If the policy is issued before 31st March, 2012 then the premium paid towards life insurance policies exceeds 20% of the total sum assured, the premium eligible for deductions u/s 80C will be subject to a limit of 20% of the sum assured. In the case of insurance policies issued on or after the 1st of April, 2012, the deductions are only allowed for so much of the premiums payable as don’t exceed 10% of the actual capital Sum Assured (In case of persons with severe disabilities the premium payable up to 15% of the sum assured can be claimed as a deduction)
- The above benefits will be reversed if the policy is terminated within two years in the case of traditional policies and within five years in case of ULIP from the commencement of the respective policy
Exemption under Section 10 (10D)
The Benefits received from Life Insurance policies are tax-free subject to satisfaction of conditions of Section 10(10D) of the Income Tax Act (1961).
Premium paid for medical insurance policy
- Deductions under this section can only be claimed by individuals or Hindu Undivided families
- Under this section you can claim up to:
- Rs. 25,000 For self, spouse, and dependent children
- Rs. 25,000 for parents
- Rs. 50,000 for self, spouse, and dependent children & parents who are senior citizens
- Costs incurred for preventive health check-ups can be claimed as a deduction up to a limit of Rs. 5000. In case of senior citizens without a medical insurance policy, medical expenses up to Rs. 50,000 can be claimed as a deduction
- Insurance Policy for the maintenance of the dependent with disability
- Premium paid towards insurance of disabled dependents can be claimed for deductions up to Rs. 75,000 per year
- Premium paid towards insurance of dependents with severe disabilities can be claimed for deductions up to Rs. 1,25,000 per year
The above tax benefits are subject to the fulfillment of the conditions mentioned in the relevant provisions of Income Tax act, 1961. Tax laws are subject to amendment from time to time. The tax write-up above is for general understanding and reference. This is not a legal and tax advice and users are advised to consult their tax advisors before making any decision or taking any action.