All about Income Tax rules applicable for Life Insurance policies.

February 20, 2016June 14, 2017 Anish L J 0 Comments Income Tax, Things to Know

Income tax rules regarding insurance policies seems to be complex. But this article can make you an expert in Income tax implications on life insurance policies.

Income tax rebate is an add-on benefit, which comes as a value addition for your invaluable insurance policies. But income tax rebate is not the only implication of income tax to be taken care of.

Knowing more on how the tax laws become applicable on your insurance policies can, not only give rich payouts and maximise the returns on your hard earned money but also it can bail you out from difficult situations in the future.
Generally speaking, Income Tax has implications on both the premium you are paying for the policy and the benefits you are receiving from the policy.

Income tax rules and rebates on insurance premium.

Income tax rebate is available for the insurance premium under the section 80 C of income tax act, subject to the following conditions.
(A) Insurance policies taken after 1st April 2003 and on or before 31 st day of March 2012 is eligible for income tax rebate irrespective of the Sum Assured of the policy.
(B) Insurance policies taken after 31st March 2012 is eligible for income tax rebate only to the extend of 20% of actual Sum Assured of the policy.

Learn more.

Download a PDF document to know more on Income Tax Slabs and Rules on Insurance policies.

Eligibility of premium for income tax rebate.

Premium on your own life
Premium on the life of spouse(Other than salary cutting policies of your spouse)
Premium on the life of your children.
(Child may be dependant or independent, Minor or major, married or unmarried.)

Amount of deduction

Maximum deduction available under section 80C of income tax act for the financial year 2015-16 is Rs. 1,50,000, which is deducted from your gross income while computing taxes.

Income tax rules on Pension policies

Premium contribution towards pension policies are eligible for rebate under section 80CCC which comes under the total rebate of 80C.

Section 80CCC.

Section 80CCC deals with the deduction in respect of premium paid for an annuity or pension plan and the pension fund used to give pension is referred to in Section 10(23AAB).

Tax liability on pension received.

Pension received is treated as receiving Salary and hence it is added to your total income. So you are liable to pay income tax on it.

Income tax rebate for health insurance premium under Sec: 80D.

Additional income tax rebate is available for premium paid for health insurance plans under section 80D of income tax act. Rebate available is up to Rs. 20000 for individuals, but senior citizens can avail this rebate up to Rs. 30000 per annum.

Know more on the health plan of LIC of India – Jeevan Arogya – which is having rebate under section 80D

Income tax rules on Maturity amount of insurance policies.Sec: 10(10D)

Maturity amount of insurance policies are not taxable under section 10(10D), if the premium paid per annum is up to 10 per cent of the sum assured of the policy.

An amount of 2% will be deducted as TDS (Tax deducted at Source), if the premium paid is more than 10% of Sum Assured.

However if the total payment received in a financial year is less than 100000 No tax is payable even if the premium is greater than 10% of Sum Assured.

Income tax rules on Death Claims

Under the provisions of Section 10(10D) of Income Tax Act the death claim payment is exempted from income tax liability.

You can download a free software – Income Tax Calculator– to find out how much tax you should pay by clicking here.

Frequently asked questions.

1. Should I pay Income Tax on Loan taken from Insurance policies.
Ans. Loan taken from insurance policies is not taxable as it does not come under the purview of income.

2. Will I get income tax rebate for the premium of policy paid for my son who is married and employed.
Ans. Yes, you can avail income tax rebate for the policy of your son or daughter irrespective of their marriage or job status.

3. Can I claim income tax rebate for the salary deduction policies of my spouse.
Ans. As the premium is directly deducted from the salary of your spouse, you cannot claim income tax rebate on it.

4. What is Section 80CCD (1B) of income tax act.
Ans. A new section 80CCD(1B) has been introduced to provide additional deduction of Rs.50000 for contributions towards NPS (New pension scheme for employees.). Thus maximum rebate up to Rs. 2,00,000 (ie 150000 +50000) can be availed using NPS contribution.

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