Tax Implication of LIC New Bima Bachat Plan

Let’s discuss LIC New Bima Bachat tax implications: 

What is LIC’s Bima Bachat Plan? 

LIC’s New Bima Bachat is a non-linked and participating plan that offers an attractive combination of protection and savings. In this life insurance plan, the premium is waged in a lump sum amount at the commencement of the plan. It is a money-back policy that provides financial security against demise at the time of the plan tenure. Additionally, it also offers the facility of survival benefit payments at particular periods during the plan term. 

Moreover, at the time of maturity/vesting, the single premium is returned with the loyalty additions. The plan offers tax benefits as per the prevailing laws of the Income-tax act, 1961 i.e., on premiums paid under section 80C and the claims received u/s 10(10D). 

LIC New Bima Bachat Tax Implications 

In this policy, the insurer promises to pay a certain amount of money called a sum assured to the beneficiary/nominee of the policyholder in case he/she passes away. If a policyholder outlives the tenure of the plan, maturity benefits are paid out to the individual. Apart from these benefits, the plan also offers tax benefits on premium paid and claim amount as per prevailing laws. Read on to know more about tax benefits: 

1. Section 80C 

   • This tax benefit is accessible to people assessed and HUV i.e., Hindu Undivided Family assesses. 

   • In individual assesses – Herself/himself, children, and spouse 

   • In HUF assesses – Any of the HUF members 

   • If the premium amount paid in a fiscal year for a plan is more than 20 percent of the real capital SA, then the deduction will only be allowed for the premium amount up to 20 percent of the SA. 

   • For the policies which are issued on or after the 1st April 2012, the deduction is allowed of only that much-paid premium as it does not exceed 10 percent of the real capital SA. 

   • The above-mentioned benefits can be reversed in case of the plan is ceased/ terminated to be in force within two years for traditional insurance products and five years for ULIP after the commencement date of the plan. 

2. Section 10(10D) 

   This section exempts you from paying taxes on the amount that you get from the life insurer. In this, the sum assured amount and the bonus received at the time of maturity or policy surrendering or on the policyholder’s demise are completely free of taxes, subject to certain T&Cs. 

   If the yearly premium of a plan exceeds 10 percent of the SA, the profits from such policies are not exempted from taxes. 

   Let’s understand with the help of an example: 

   Imagine your life insurance policy has a yearly premium of Rs. 1.25 lakhs and Rs. 8 lakhs are the life cover. In such a case, the tax benefit u/s 80C will be capped at around 80000. Additionally, any profits from such plans are taxable. 

Benefits From LIC New Bachat Plan Are Taxable!

1. Death Benefits 

   It is paid in case of policyholder’s demise during the insurance policy tenure is as under: 

   • Upon the death during the initial five years of policy – Sum assured amount on death 

   • Upon death after completing 5 years of policy – Sum assured amount on death plus loyalty additions 

   Sum assured on death received by the nominee is the highest of: 

   • 1.25X the single premium 

   • Basic SA 

   The single premium mentioned above does not include taxes, additional, and rider premium. 

   Profits from the LIC Bima Bachat during the policyholder’s demise are exempted from income tax. 

2. Survival Benefits 

   • For policy tenure 9 years 

   15 percent of the SA after the third and sixth year of the plan 

   • For policy tenure 12 years 

   15 percent of the SA after the third, sixth, and ninth year of the plan

   • For policy tenure 15 years 

   15 percent of the SA after the third, sixth, ninth, and twelfth year of the plan. 

   The payouts received are also free of taxes u/s 10(10D) as per the ITA, 1961. 

3. Maturity Benefits 

   In case if the policyholder survives the policy term, the sum assured on maturity is paid along with the guaranteed additions. In this, the sum assured on maturity paid excludes taxes, rider, and additional premium. 

   The payouts received are also free of taxes u/s 10(10D) as per the  ITA, 1961. 

Should I Purchase LIC Bima Bachat to Save Taxes? 

Most of us buy life insurance policies to save on income tax u/s 80C. Any of the benefits that are received from the life insurer is exempted from the Income-tax. The plan offers statutory taxes. Statutory taxes are applicable as per the income tax laws and the rate is also applied from time to time. The sum of applicable taxes according to prevailing prices, shall be paid by the life assured on the single premium involving the rider premium and the additional premium which is collected as a separate, in addition to a premium paid by the policyholder. The amount a policyholder pays shall not be considered for the computation of benefits that are payable under the scheme. 

Wrapping It Up!

LIC Bima Bachat is a money-back plan that provides financial protection against death during the plan tenure. Apart from this, the plan also provides tax benefits u/s 80C and 10(10D) as per the ITA, 1961. It is a smart tax-saving tool. The LIC Bima Bachat tax implications are discussed above for your smooth understanding.