Tax Exemption on Insurance Premiums

A good way to avoid the payment of a huge amount of income tax towards the end of a financial year is to sign up for an insurance policy. The income tax department allows a moderate deduction of tax payment for those who invest in insurance policies, especially policies that are offered by the government itself.

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The best time to invest in insurance policies in order to be exempted from paying income tax would be at the start of the financial year. The policy should be one that benefits the policyholder in the long term while enabling him to incur savings on tax payments at the same time.

What are the Exemptions on the Premium Paid for Life Insurance Policies?

  • Life insurance policies may serve as good tax planning tools since the premium which is paid by policyholders is something that is eligible for certain tax benefits that are listed under Section 80(c) in the Income Tax Act of 1961.

  • The Maturity Proceeds are also likely to be eligible for exemption as per the provisions Section 10(10A) (iii) and Section 10(10D). Investing in a life insurance policy could help the assessor to achieve long term goals while saving tax as well.

  • It also gives the policyholder comprehensive financial protection from unforeseen events that may take place within a person’s family.

  • With respect to Life insurance premiums the maximum tax deduction which is allowed under Section 80(c) is 1.50 lakh INR.

  • This sum includes the payment made on other forms of allowable investment that are made available under Section 80(c).

  • It should also be noted that the combined maximum deduction limit under Section 80 CCD (1), Section 80CCC and Section 80 C comes to 150000 INR.

  • The tax deduction that is allowed for life insurance policy premiums is 10% at the maximum of the sum that has been assured for the policy which was issued after or prior 1st of April 2012.

  • The premiums for policies that were issued prior to March 2012 can enable a tax deduction of as much as 20% of the amount assured.

  • It is only the premium for a life insurance policy that is paid in a specific financial year that will be eligible for tax deduction in that particular year.

  • The deductions that have been claimed earlier shall become taxable if the life insurance policy is terminated by any failure on the part of the policyholder to pay a premium or by notice for a single premium policy in two years since the date of commencement and for regular premium policy for which premiums have not been paid for more than two years.

  • The premium can be paid for a policy that ensures the life of the policyholder himself, for the wife or husband irrespective of whether this person is a dependent or not and for the child of the policyholder.

  • Tax deductions cannot be applied for premiums that are paid for life insurance policies that are meant to benefit the sisters in law or brothers in law of the policyholder.

  • While the premium that is paid for policies that are offered by the Life Insurance Corporation of India makes the policyholder eligible for tax deduction, premiums paid for life insurance policies that are offered by private companies can also exempt policyholders from paying tax.

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What are the Exemptions on the Premium Paid for Medical Insurance Policies?

Section 80(D) of the Income Tax Act of 1961 offers tax exemptions for premiums paid on medical insurance policies. This provision extends to both Hindu Undivided Families (HUFs) and individuals.

These tax benefits are in addition to the deductions provided under Section 80(c), which allows for deductions of up to 150,000 INR. The scope of deductions covers insurance policies for the policyholder, their spouse, dependents, and, in the case of an HUF, any family member.

Under Section 80(D), the policyholder can claim a tax deduction of up to 25,000 INR when filing their taxes. However, if the policyholder is a senior citizen and holds senior citizen health insurance, the eligible tax deduction increases to 50,000 INR.

The maximum total deduction which can easily be claimed by medical insurance policyholders under Section 80D can be seen below:

Taxpayer's Age Maximum Deduction for Self, Spouse, and Dependent Children Maximum Deduction for Parents
Below 60 years Rs 25,000 Rs 0
60 years and above Rs 50,000 Rs 25,000 (if parents are below 60 years)
60 years and above Rs 50,000 Rs 50,000 (if parents are 60 years or above)

Things to Know When Purchasing Insurance Policies for Tax Exemption

  1. Opt for Reputable Insurance Providers:

    When starting the purchase of an insurance policy with the goal of obtaining tax exemptions, it is important to select a company with a proven reputation. Look for insurers that have established themselves for a minimum of 5 to 10 years, if not longer. This ensures reliability and stability in the provision of life or medical insurance policies that offer tax benefits.

  2. Maintain Premiums of 10,000 INR or More:

    The premium paid for life or medical insurance should amount to at least 10,000 INR. Additionally, this premium should be paid annually to qualify for tax deductions by the end of the financial year, as opposed to a biennial payment schedule.

  3. Safeguard and Use Tax Deduction Certificates with Care:

    Upon payment of the annual premium, the insurance company issues a tax deduction certificate to the policyholder. It is crucial to handle this certificate with utmost care, as it will be required when filing income taxes and applying for tax returns. Submission of a hard copy is mandatory, as electronic formats of such certificates are not considered acceptable.

  4. Ensure a Minimum Policy Duration of 10 or 20 Years:

    For insurance policies to be eligible for tax deduction under Section 80(D) and Section 80(C), they should have a validity period of at least 10 or 20 years. Short-term policies are less likely to meet the criteria for tax benefits, emphasizing the importance of a longer-term commitment.

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How can a Life Insurance Policy or Medical Insurance Policy be purchased for Tax Deduction?

  1. Connect with Knowledgeable Insurance Agents

    For those seeking life or medical insurance policies eligible for deductions under Sections 80C and 80D of the Income Tax Act, 1961, engaging with reputable insurance agents is a prudent step. Our practice involves collaborating with agents from well-established insurance companies to guide customers towards optimal investments in medical and life insurance. This ensures a seamless and hassle-free process for claiming tax deductions.

  2. Purchase Insurance Policies Online

    At Policybazaar discover affordable insurance options, ensuring yearly premiums fitting any budget while guaranteeing tax returns. We provide a curated list of top insurance policies, negotiating with agents to secure optimal tax-saving benefits for our customers. Consider life or medical insurance for substantial tax deductions under sections 80C and 80D of the Income Tax Act of 1961. Encourage senior citizens to explore medical insurance for significant tax benefits tailored to their needs.

FAQ's

  • What is the tax exemption limit for insurance premium?

    The tax exemption limit for insurance premiums depends on the type of insurance policy. For health insurance premiums, the maximum deduction is Rs 25,000 per financial year for individuals below the age of 60 years and Rs 50,000 per financial year for senior citizens (aged 60 years and above). For life insurance premiums, the maximum deduction is Rs 1.50 lakh per financial year.
  • How much tax can be saved with insurance premium?

    The amount of tax that can be saved with insurance premiums depends on your individual tax bracket. However, as a general rule of thumb, you can expect to save between 30% and 50% of your insurance premiums in taxes.

*All savings are provided by the insurer as per the IRDAI approved insurance plan.
*Tax benefit is subject to changes in tax laws. Standard T&C Apply
^The tax benefits under Section 80C allow a deduction of up to ₹1.5 lakhs from the taxable income per year and 10(10D) tax benefits are for investments made up to ₹2.5 Lakhs/ year for policies bought after 1 Feb 2021. Tax benefits and savings are subject to changes in tax laws.
~Source - Google Review Rating available on:- http://bit.ly/3J20bXZ

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