Tax Exemption on Insurance Premiums

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A good way to avoid the payment of a huge amount of income tax towards the end of a financial quarter or year is to sign up for an insurance policy of any sort. 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.

Salaried employees and businessmen can invest in life insurance or medical insurance, in order to consider themselves, eligible for tax deduction, in every financial year. The premium that is paid towards the insurance policy should be of a substantive amount.

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 policy holder in the long term while enabling him to incur savings on tax payment at the same time.

Exemption 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 policy holders 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 assessor’s to achieve long term goals while saving tax as well.
  • It also gives the policy holder 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 is for life insurance policy premiums is 10% at the maximum of the sum that has been assured for 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 life insurance policy is terminated by any failure on the part of the policy holder to pay premium or by notice for 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 insures the life of the policy holder himself, for the wife or husband irrespective of whether this person is a dependent or not and for the child of the policy holder.
  • 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 policy holder.
  • While the premium that is paid for policies that are offered by the Life Insurance Corporation of India makes the policy holder eligible for tax deduction, premiums paid for life insurance policies that are offered by private companies can also exempt policy holders from paying tax.

Exemption on the Premium Paid for Medical Insurance Policies

Section 80(D) of the Income Tax Act of 1961 provides for tax exemptions for payment of a premium of a medical insurance policy. This payment can be carried out either by an HUF or by an individual.

Such tax deductions are made available in addition to the deductions that are provided of 150000 INR under Section 80(c). Deductions are allowed for insurance policies that are meant for the policy holder himself, for his wife or dependents and in the case of an HUF for just about any member of the family.

The quantum of tax deduction that may be claimed by the medical insurance policy holder when filing taxes, under section 80(d), is 15000 INR. It if the policy holder is a senior citizen then the amount of money that can be claimed as tax deduction is as much as 20,000 INR.

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

Description

Medical Insurance Paid for

Total Deduction of Tax under Section 80 D

 

Self, Spouse as well as Dependent Children

Parents (dependents or not)

 

No One has reached 60 years of age 

Rs 15,000

Rs 15,000

Rs 30,000

Assessee and family are under 60 years while parents are aged above 60 years

Rs 15,000

Rs 20,000

Rs 35,000

Assessee as well as his parents are more than 60 years in age

Rs 20,000

Rs 20,000

Rs 40,0000

 

The tax payers balance income after the tax deductions have been allowed shall then be taxable with regard to the specific income tax slabs that pertain to the tax payer based on his age and profession.

Things to Know when Purchasing Insurance Policies for Tax Exemption

Policies should be purchased from Companies of Repute

One of the most important things that needs to be borne in mind when purchasing an insurance policy in order to be considered eligible for tax deduction is to make sure that the policy is bought from a company of repute. The company offering the life insurance or medical insurance policy that exempts its holder from taxation, should be one that has been in existence for a good 5 to 10 years at least if not for longer than that.

Insurance premium should be of or above 10,000 INR in value

The amount that is paid as premium for life insurance or medical insurance should be around or above 10,000 INR. The premium is also an amount that ought to be paid by the policy holder on a yearly basis rather than every two years in order to qualify for tax deduction at the financial year end.

Tax Deduction Certificates need to be conserved and used with Care

  • The certificate for tax deduction that is mailed to the policy holder by the insurance company after receiving the yearly premium should be kept with great care.
  • This certificate will have to be produced before income tax officials at the time of filing taxes and even when filing for tax returns.
  • It is a hard copy of this certificate that will have to be submitted to the IT officials as an electronic format of such a certificate will not be considered as acceptable.

Insurance Policy should be valid for 10 or 20 years at least

The medical insurance policy or the life insurance policy which is bought for consideration of tax deduction should also be a policy that will run for a good 10 or 20 years. Insurance policies that are bought for the short term are not likely to be regarded as eligible for tax deduction under Section 80(D) and Section 80(C).  

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

Get in Touch with Insurance Agents

In order to procure a life insurance policy or a medical insurance policy that can be used for claiming deductions under Section 80(c) and (d) of the Income Tax Act, 1961, it would be good to get in touch with the agent of an insurance company of repute. We often deal with insurance company agents to get our customers to invest in the best medical and life insurance policies so as to be able to claim tax deductions in a smooth and hassle free manner.

Purchase Insurance Policies Online

We also make it feasible for our customers to buy good insurance policies online, where the premium to be paid every year fits every budget and guarantees tax returns at the same time. For this purpose we give our customers a list of the best insurance policies that can be invested in and carry out the process of negotiating with insurance agents to clinch policies that can look into the tax saving interests of our customers the most.

Thus, it can be quite a good idea to make a purchase of a life insurance policy or a medical insurance policy as there are huge tax deductions that can be claimed under sections 80 c and d of the Income Tax Act of 1961. Even senior citizens should be encouraged to sign up for medical insurance as the tax deductions allowed for them in this respect are quite substantial.

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