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Tax Benefits on Life Insurance

Life insurance is more than just another investment option. It is an asset that protects the financial wellbeing of your loved ones in your absence. If you are your family's sole breadwinner, you should certainly invest in life insurance.

In the unfortunate event of your death, the life insurance company pays your beneficiaries a lump sum amount, as per the sum assured. You may also opt for life insurance policies with add-on riders such as coverage against illness and accidents, causing disabilities for better coverage.

A life insurance policy can offer you essential tax benefits but it's advantages of protecting your life go beyond tax saving. Know how your life insurance policy can provide your loved ones with financial protection in your absence. ICICIdirect shows you how to get more benefits and value from your life insurance.

Life Insurance Benefits You Cannot Ignore

Life insurance plans provide risk-coverage as monetary compensation to your family against the premiums paid during your lifetime. You also have the option to customise your insurance plan by choosing from different types of policies like term insurance, ULIPs, endowment plans, etc. Some life insurance plans also allow you to avail loan benefits against a portion of the sum insured.

Also, check out the tax benefits of investing in Health Insurance Plans.

Tax Treatment and Deductions on Life Insurance Plans

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Income deductions under Section 80C

Premiums paid towards life insurance are eligible for income deductions under Section 80C of the Income Tax Act, 1961. You may take out the policy in your or your spouse or children's names. Under Section 80C, you can claim deductions of up to Rs. 150,000 p.a. across various 80C investments.

You may claim the income deduction so long as the premium paid does not exceed 10% of the sum assured for policies issued after (1st April 2012). The cut-off limit for income deductions on policies issued before 1st April 2012 is 20% of the sum assured.

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Deductions under Sections 80U and 80DDB

Under Sections 80U and 80DDB, you can claim income deductions of up to 15% of the sum assured on life insurance plans covering individuals with disabilities and individuals with illnesses or diseases, respectively.

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Tax Exemption on maturity amount received under Section 10(10D)

Under Section 10(10D), any amount received as bonus throughout the insurance tenure or on the maturity of the insurance policy is fully exempted from income tax. This section of the Income Tax Act also applies to individuals covered under Section 80U and Section 80DDB.

In case the premium paid exceeds 10%, 15%, or 20% quota of the sum assured, any payments received from the life insurance policy will be fully taxable.

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TDS on life insurance plans

W.e.f. October 2014, any amount received from your life insurance provider (including bonus payments) exceeding Rs. 100,000, will be eligible for tax deduction at source (TDS). TDS is not applicable on amounts less than Rs. 100,000 and you can claim credits for TDS deducted while filing your tax returns.

Note: In the Union Budget 2019, the FM proposed to amend the TDS on insurance policy proceeds to 5% on the income amount comprising the proceeds paid/payable on maturity, on or after 1st September 2019.

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Life Insurance for Saving Tax

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