Life insurance policies offer various tax benefits to policyholders in India. These benefits are provided under the Income Tax Act of 1961 and can help policyholders save money on their taxes and increase their overall financial well-being. In this blog, we will discover the various tax benefits of life insurance policies in India and how they can be availed. So read on to learn about the tax benefits of life insurance in India and how they can help you save money on your taxes.
- Premiums paid for life insurance policies:
Premiums paid for life insurance policies are eligible for tax deductions up to a maximum of INR 1.5 lakhs per year under Section 80C of the Income Tax Act. This includes premiums paid for traditional life insurance policies and unit-linked insurance plans (ULIPs). The tax deductions are available to the policyholder or the person who pays the premiums.
- Maturity or death benefits:
Maturity or death benefits received from a life insurance policy are tax-free under Section 10(10D) of the Income Tax Act, provided the premiums paid for the policy do not exceed 10% of the sum assured. This means that if the premiums paid for the policy are more than 10% of the sum assured, the excess amount is taxable.
- Interest earned on premiums:
The interest earned on the premiums paid for life insurance policies is tax-free under Section 10(10D) of the Income Tax Act, provided the premiums paid for the policy do not exceed 10% of the sum assured.
- Premiums paid for a disabled dependent:
Premiums paid for life insurance policies for the benefit of a disabled dependent are eligible for tax deductions up to a maximum of INR 75,000 per year under Section 80DD of the Income Tax Act. The disabled dependent must have a disability of at least 40%, as certified by a medical authority.
- Premiums paid for a severely disabled dependent:
Section 80U of the Income Tax Act permits tax deductions on premiums paid for life insurance policies for the benefit of a severely disabled dependent up to a maximum of INR 1.25 lakh per year. The severely disabled dependent must have a disability of at least 80%, as certified by a medical authority.
- Premiums paid for child insurance:
Child insurance policies are term insurance policies that provide financial protection for the policyholder’s children. Premiums paid for child insurance policies are tax deductible up to a maximum of INR 1.5 lakhs per year under Section 80C of the Income Tax Act. This means that the policyholder can claim a tax deduction on the premiums paid for the policy, subject to a maximum limit of INR 1.5 lakhs per year.
- Premiums paid for annuity plans:
Annuity plans are insurance policies that provide a regular income to the policyholder after retirement. Annuity plan premiums are tax deductible under Section 80CCC of the Income Tax Act up to a maximum of INR 1.5 lakhs per year. This means that the policyholder can claim a tax deduction on the premiums paid for the policy, subject to a maximum limit of INR 1.5 lakhs per year.
- Premiums paid for critical illness insurance:
Insurance policies provide financial protection if the policyholder is detected with a critical illness such as a heart attack, stroke, or cancer. Premiums paid for critical illness insurance policies are tax deductible up to INR 40,000 per year under Section 80DDB of the Income Tax Act. This means that the policyholder can claim a tax deduction on the premiums paid for the policy, subject to a maximum limit of INR 40,000 per year.
It is crucial to note that the above tax benefits are subject to certain conditions and limits as prescribed by the Income Tax Act of 1961. Therefore, it is advisable to consult with a tax professional or financial advisor to understand the tax implications of life insurance in your specific situation.
In conclusion, life insurance policies offer various tax benefits to policyholders in India. Whether you are looking to invest in a traditional life insurance policy, a unit-linked insurance plan, an annuity plan, or a critical illness insurance policy, it is vital to consider the tax benefits of these policies. By understanding the tax benefits of life insurance in India, you can make an informed decision about the right policy for you and your family. On the other hand, you are interested in learning more about the tax benefits of life insurance policies in India. In that case, we recommend consulting with a tax professional or financial advisor to understand the tax implications of these policies in your specific situation.
