Life Insurance Premium Tax Benefits Payment And Maturity: Life insurance is very much important, especially if an individual’s spouse and children are dependent. A life insurance policy may not bring back a person, but it will financially secure the family members. It also provides benefits on tax filing under section 80C. Investments in life insurance provide minimal risk, tax benefits, and benefits of insurance. Therefore people prefer investing in life insurance. The maturity benefits and bonus are exempted from tax under section 10(10D), and payment of premium for life insurance is allowed for deduction under section 80C while filing income tax.
- Deduction Of Various Entities Under Section 80C
- Limit On Deduction
- Proceeds Of Maturity Under Section 10(10D)
Deduction Of Various Entities Under Section 80C
In an individual’s case: If an individual purchased a policy for himself/herself, for spouse or children, then the premium paid is eligible for deduction. Life Insurance premium paid for parents, brother, or sisters-in-law does not qualify for the deduction.
In the case of HUF: The Life Insurance policy should be taken on the life of any of the members of such Hindu Undivided Family. The premium qualifies for deduction only when the premium is paid in that year.
Limit On Deduction
Under Section 80C, a maximum deduction of 10% of the actual sum assured is allowed for life insurance premium issued from April 1, 2012. A maximum deduction of 20% of the total sum assured is allowed for policies that were issued from April 1, 2003, and on or before March 31, 2012.
When the policy is issued on or after April 1, 2013, for a person who is:
- A person suffering from an ailment or a disease is eligible for deduction under section 80DDB.
- A person with any physical disability or severe disability is eligible for deduction under section 80U.
A maximum deduction of 15% of the total sum assured is allowed for insurance premium.
The actual sum assured is the pre-decided minimum amount confirmed under the policy that the insurance company will pay to the policyholder on happening of the insured event. The value of any premium of life insurance agreed to be returned or any gain by way of bonus or incentive or otherwise over and above the actual sum assured which is to be or may be received by any person under the policy is not to be taken into account while calculating the actual amount of sum assured.
If the individual terminates the contract or the contract ceases to be in force by any reason of failure to pay any premium of life insurance, then:
- In case of any single premium policy of the life insurance, then within two years after the date of commencement of insurance; or;
- In any other case, where premiums have been paid before two years, the individual is not allowed any deduction for any premium paid in that financial year.
The premium paid for such insurance policy, which was allowed as deduction in earlier financial years, is now taxable in the year from which the life insurance policy ceases to be in force or terminated.
The total premium paid for policies under section 80C, 80CCC and 80CCD qualify for a maximum deduction of ₹150,000.
Proceeds Of Maturity Under Section 10(10D)
The benefits of maturity, including the bonus, are tax-free for the recipient when the person dies. The maturity benefits, including bonuses when received by the insured person himself, are also exempted from tax.
But there are specific exclusions for maturity proceeds. It will not be exempted from tax in the following cases:
- Any sum of money received under section 80DD(3) or section 80DDA(3) of the Income Tax Act.
- Any sum of money received for the insurance policy issued on or after April 1, 2003. When on or before March 31, 2012, the premium payable exceeds 20% of the actual sum assured for any years during the policy term.
- Any sum of money received for the insurance policy issued on or after April 1, 2012, then the payable premium exceeds 10% of the actual sum assured for any years during the policy term.
- Any sum of money received under the Keyman Insurance Policy. It means:
- When the life insurance policy is taken by a person on the life of another individual who is an employee of the person as mentioned earlier.
- When the life insurance policy is taken by a person on the life of another individual connected with the aforementioned person’s business.
When the policy is issued on or after April 1, 2013, for a person who is:
- A person suffering from an ailment or a disease is eligible for deduction under section 80DDB.
- A person with any physical disability or severe disability is eligible for deduction under section 80U.
The rate of 10% is to be replaced by 15%.
If such amount of money received is not exempted from any tax under section 10(10D) and the amount of money exceeds ₹100,000 in a specific financial year, then TDS is to be deducted on such amount at the rate of 1% (before June 1, 2016 rate should be 2%).