The life insurance policy can be defined as a contract between an insurer and policyholder where an insurer promises to pay the nominee of the policyholder, upon the death of the policyholder or after a set period when the policy gets matured. Taking a life insurance policy can have the benefits of life-saving and it is also a part of tax planning. Premium paid on life insurance can be allowed as a deduction under the income tax act. Under the income tax act 1961, first, income is calculated after deducting certain expenditures, which is called Gross Total Income. Thereafter deduction specified under chapter VIA which covers Section 80C to 80U is allowed from the Gross Total Income. The premium paid to the life insurance company is allowed as a deduction under section 80C but with a certain limit. In other words, you can claim the deduction of premium paid for the life insurance premium up to Rs.1.5 lakhs in a year.
Who can claim the deduction of the life insurance policy under section 80C?
Section 80C of the income tax act specifically states that only Individual or HUF can claim the deduction under section 80C. In other words, no partnership firm, company registration in gurgaon, or LLP registration in Gurgaon is eligible to claim deduction under section 80C.
In whose name insurance policy be taken for income tax benefit?
- In case of an individual, deduction is available in respect of insurance policy taken in the name of himself/herself, his/her spouse or his/her children.
- In case of HUF, deduction is available in respect of policy taken in the name of any of the member of the HUF.
What is limit of insurance premium paid, eligible to claim deduction under section 80C?
Overall deduction is allowed up to Rs.1.5 lakhs (one lakh fifty thousand)
Is there any limit of life insurance premium with respect to capital sum assured?
- Policies issued on or before 31-3-2012: Deduction is restricted to 20% of capital sum assured.
- Policies issued on or after 1-4-2012: Deduction is restricted to 10% of capital sum assured.
- Policy taken on or after 1-4-2013 in the name of any person suffering from disability or severe disability referred to in section 80U or suffering from disease or ailment as given in section 80DDB, the limit will be 15% of capital sum assured.
Tax treatment of amount received from Life insurance amount including bonus
Amount received from the life insurance company is exempt from income tax, except under the following cases:
- Payment received under a Keyman Insurance policy
- Payment received under section 80DD(3) or section 80DDA(3)
- Any payment received under a policy issued from 1st April 2003 to 31-3-2012 where annual insurance premium paid is more than 20% of capital sum assured.
- Any payment received under a policy issued after 31-3-2012 where annual insurance premium paid is more than 10% of capital sum assured.
- Any payment received under a policy after 1-4-2013 in the name of any person suffering from disability or severe disability referred to in section 80U or suffering from disease or ailment as given in section 80DDB, where annual insurance premium paid is more than 15% of capital sum assured
- Any payment under the Unit-linked insurance policy issued on or after 1st February 2021, if the total amount of premium payable in a year exceeds Rs. 2,50,000.
Note: Any amount received from the life insurance company in respect of insurance policy is exempt from income tax except in case of the Keyman insurance policy and payment covered under section 80DD(3) and 80DDA(3).
It is important to note that deduction under section 80C of premium paid shall not be allowed from the following incomes:
- Long-term capital gains
- Short-term capital gains
- Winnings from lotteries, horse race, crossword puzzle, race, etc.
- Income covered under sections 115A, 115AB, 115AC, 115AD, 115BBA and 115D.
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