Tax-Saving Benefits of Various Insurance Policies
We all worry about taxes. However, we can minimize the burden of taxes by investing in schemes and policies which are exempted from taxes. Yes, that's true! In India, the Income Tax Act, 1961, offers all taxpayers specific exemptions on eligible investments. A few of these investments include tax-saving mutual funds, fixed deposits, pension plans, PPF, as well as life insurance policies. Insurance is a must and to enhance their value and encourage people to insure and invest, the government offers tax advantages for these insurance plans:
Life Insurance policies
Health insurance policies
Tax benefits of life insurance policies
Section 80CThe maximum deduction given under this section is up to 1.5 lakhs.
Tax exemption is given for premiums paid on insurance policies taken for self, spouse, dependent children, and in some cases dependent parents.
All life insurance policies endowment plan, whole life insurance plans, money back policies, term insurances, as well as Unit Linked Insurance Plans (ULIPs) are eligible for tax exemption under Section 80C of the Income Tax Act, 1961. The following conditions apply:
Section 80CCC provides an exemption for any amount paid in the annuity plan of Life Insurance Corporation of India or any other insurance company to secure a pension. The maximum deduction under this section is also up to 1.5 lakhs.
Under this section, the amount you receive from the insurance company is fully exempt from income tax, subject to some conditions. The exemption applies to the receipt of sum assured, bonus, maturity value, surrender value and the death benefit.
It must be noted that if you cancel or withdraw any of the tax-exempted life insurance plans before the expiry of 5 years, the deductions will stand cancelled. Your deductions will be included back in your income in the year of policy cancellation, and you would pay taxes accordingly.
For 80C, your total premiums in a financial year should not exceed 10% of the sum assured.
In the case of Section 10(10D), tax exemption is also subject to not more than 10% of the sum assured.
Health Insurance Policies
Health insurance provides extensive health coverage only and does not secure you against any other uncertainty. However, even these plans are eligible for tax exemption under the Income Tax Act, 1961. The sections 80D, 80U, 80DD, and 80DDB provide exemptions and relief on the basis of age and diseases.
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