Life insurance is one of the most important and necessary elements of guaranteeing a stable financial situation and a comfortable life for your loved ones. Even without you, your family can create a secure future with the capital benefits of life insurance. Also, there are income tax advantages for purchasing the insurance policy under Sections 80C and 10D of the Income Tax Act. A life insurance policy’s premiums can be written off under Section 80C up to a maximum of 1.5 lakh, and Income on Maturity is tax-free under Section 10(10D) if the premium does not exceed 10% of the sum assured or the total assured is at least 10 times the premium.
However, you will receive a premium concession of up to 10% of the promised sum if the total assured is less than ten times the premium, such as when you pay Rs. 1 lakh for Rs. 5 lakh in the sum assured. Your deduction in the example will be Rs. 50,000 as opposed to Rs. 1 lakh.
Also, the assured payment that is given to the nominee in the event of death remains tax-free. Nonetheless, the income will be taxed at the marginal tax rate upon maturity because the insurance does not meet the requirements for the income tax advantage.
According to Section 80C, tax deductions are available for premiums paid for life insurance policies up to a maximum of Rs. 1,50,000 as long as the total premium paid during the financial year equals 20% of the policy’s sum assured. Only life insurance policies that were issued before March 31, 2012, are covered by this.
For policies that were issued after 1 April 2012, tax deductions are available for premium payments that total 10% of the sum assured in a given fiscal year.
According to section 80C(5), the insured will not get any benefits on the premium paid, proposed under section 80C of the Income Tax Act, if the insurance policy holder voluntarily surrenders his policy or in the event, the policy is terminated before 2 years from the date of commencement of the policy. The sum assured amount plus bonus (if any) that is paid upon surrender or maturity of the policy or in the event of the insured’s death is completely tax-free for the receiver under Section 10(10D) of the Income Tax Act.
Below are some of the key points of section 10(10D) of tax deductions:
Life insurance tax benefits can be significant for policyholders, as any sum paid to the insured under a life insurance policy is deductible from income. This means that the proceeds received by the policyholder, including maturity benefits, death benefits, bonus amounts allotted, surrender values, and survivor benefits, are not subject to income tax.
Furthermore, the gains and proceeds from Unit Linked Insurance Plans (ULIPs) are also eligible for Section 10(10D) deduction, which allows for the tax exemption of the entire amount received upon maturity or death. However, it is essential to note that the deduction is only applicable where the premium paid for the policy does not exceed 10% of the sum guaranteed.
It is worth noting that the tax benefits of life insurance policies may vary depending on the specific policy and individual circumstances. For example, the premiums paid for a policy may be eligible for tax deductions under Section 80C of the Income Tax Act up to a maximum of Rs. 1.5 lakh per year.
Overall, life insurance tax benefits can be valuable for those seeking to protect their loved ones and build their financial security for the future. However, consulting with a qualified financial professional is recommended to fully understand a life insurance policy’s tax implications and potential benefits before making any decisions. Any life insurance policy maturity amount or bonus amount received by the policy beneficiary in the event that the insured passes away is completely exempt from the tax deduction.
Life insurance tax benefits can provide significant financial advantages for individuals and their families. The tax-free death benefit payout can help provide financial support for loved ones after a policyholder passes away. A term insurance calculator is a tool you may use online to determine the amount of coverage required.
However, it is important to note that the tax benefits of life insurance policies can vary depending on the specific policy and individual circumstances. It is advisable to consult with a qualified financial professional to fully understand a life insurance policy’s tax implications and potential benefits before making any decisions. A life insurance calculator is an easy-to-use tool to check the amount of premium you would have to pay.