Life Insurance policies and Income Tax

There are several tax implications when you buy a life insurance policy, let’s have a look.

Deduction under section 80C for Premium payments – If you have paid an insurance premium to insure your own life or the life of your spouse or your child, such premium payments are eligible for deduction under section 80C. Your child may be dependent or independent, minor or major, married or unmarried, deduction under section 80C shall be allowed. However, to claim deduction under section 80C the premium paid should not exceed 10% of the sum assured where the policy has been issued after 1st April 2013. Sum assured simply means the minimum amount assured under the policy to the survivor. This amount does not include premium which has been agreed to be returned or any payment of bonus on the policy.

Exemption under section 10(10D) on Maturity amount received –When the premium paid on the policy does not exceed 10% of the sum assured – any amount received on maturity of a life insurance policy or amount received as bonus is fully exempt from Income Tax.

Taxation where the premium paid is more than 10% of the sum assured – Any money received from a life insurance policy, where the premium is more than 10% of the sum assured is fully taxable. This income is added under the head ‘income from other sources’ and taxed at slab rates applicable to you.

Starting October 2014, if the amount received is more than Rs 1,00,000, TDS @ 2% shall be deducted by the insurer before making this payment. TDS will also be deducted on bonus payments. If the amount received is less than Rs 1,00,000 no TDS shall be deducted but the amount received shall be fully taxable for you. You can claim credit for the TDS deducted in your Income Tax Return.

Hope this helps you understand tax aspects related to your insurance policy, reach out to us support@cleartax.in if you have any questions and we will assist you!

 

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