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01 Mar, 2022 | Opinion

Here’s How Your Insurance Can Offer You Tax Benefits

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Let’s first understand the kind of policies, under Health Insurance and Life Insurance, that provide tax benefits.

When we talk about Health Insurance policies, tax deductions can be availed on the premiums you pay every year under Section 80D of the Income Tax Act of India. The types of health insurance plans that are eligible for deduction under this section are individual health insurance policies, family floaters, top-up plans, super top-up plans, and hospital cash policies. Further, you can also get tax deductions for critical illness insurance, cancer insurance, health riders in term life, critical illness rider, hospital cash rider, and surgical care rider.

On the other hand, when it comes to Life Insurance, all policies are eligible for tax exemptions subject to certain conditions, which we will cover later in the article. You can avail exemptions on both the premiums and the claim amount under sections 80C and 10(10D) of the Income Tax Act of India, respectively. You can get tax deductions for several types of life insurance policies such as Term Insurance, Endowment Plans, ULIPs (Unit Linked Insurance Plans), Money-back policies, and Retirement Insurance Plans.

Let’s deep-dive into the nitty-gritties of how you can save your money by making use of these helpful tax benefits. 👇

Health Insurance Policies - Tax Benefits

The health insurance premiums you pay every year are tax-deductible under Section 80D of the Income Tax Act of India.

What is Section 80D?

If you’re an individual or a member of the Hindu Undivided Family (HUF), you can get tax benefits for premiums paid for a health insurance policy taken for yourself, your spouse, dependent children, and parents under Section 80D of the Income Tax Act of India. The deductible limit under this section will depend on the age of the policyholder. 

Under Section 80D, you can also get tax deductions of up to INR 5,000 for any payment made towards preventive health check-ups, which can be availed even if you've made the payment for the preventive health check-up in cash.

Life Insurance Policies - Tax Benefits

You can get tax benefits on the life insurance premiums you pay and the claim amount under sections 80C and 10(10D) of the Income Tax Act of India, respectively.

Saving tax u/s 80C when paying premiums for Life Insurance

The Income Tax Act talks about tax saving investments under Section 80C. This includes Life Insurance policies. When you cover yourself, your spouse, or child under a life insurance policy, section 80C of the Income Tax Act allows you to claim a premium upto Rs. 1.50 Lakhs as deduction.

You’ll be eligible to get tax deductions under this section only if - 

  • You’re paying the life insurance premiums to an insurance company that is authorised by the Insurance Regulatory and Development Authority of India (IRDAI). 
  • The premium payable does not exceed 20% of the sum assured, if the life insurance policy is issued to you before 1st April 2012.
  • The premium payable does not exceed 10% of the sum assured, if the life insurance policy is issued to you after 1st April 2012.

Saving Tax u/ Section 10 (10D) when receiving claim money from insurance companies

Not just the premiums of life insurance policies, you can also claim tax benefit on the claim amount of life insurance too. As per Section 10(10D) of the Income Tax Act, the claim amount plus bonus (if any) received by you or your nominee is completely tax-free.

The claim payment can be for any of the following reasons - 

  • The death of the insured
  •  Surrendering the policy (ending the policy mid-term)
  • Maturity of the policy (completion of the policy term)

 The claim amounts received will be tax-free under this section only on the fulfilment of the following conditions - 

  1. If the life insurance policy is issued before 1st April 2012, the premium payable should not exceed 20% of the sum assured.
  2. If the life insurance policy is issued after 1st April 2012, the premium payable should not exceed 10% of the sum assured.

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Key takeaways
  1. You can get tax deductions on the life insurance claim amount and premiums paid for both life and health insurance under various sections of the Income Tax Act of India, 1961. 
  2. If you’re an individual or a member of the Hindu Undivided Family (HUF), you can get tax deductions for medical insurance premiums u/s 80D of the Income Tax Act. The maximum deduction you can claim depends on your age and that of your family members. 
  3. You can get tax deductions on life insurance premiums you pay u/s 80C if you’ve taken a life insurance policy for yourself, your spouse, or your child upto Rs. 1,50,000 in a year.
  4.  The sum assured plus bonus (if any) paid on the death of the insured or surrender value or payments made on maturity of savings based  life insurance policy are completely tax-free subject to certain conditions u/s 10(10D).
Team Beshak
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