Wed. Sep 4th, 2024
Life insurance refers

Life insurance refers to a contract between an insurer and a policyholder in which the insurer agrees to pay a specified sum assured upon the demise of the policyholder. To reduce tax, deductions and exemptions can be availed under Section 80C of the Income Tax Act, 1961.

Life insurance productshelpto secure the financial future of your nominees.Along with that, you also get to avail life insurance tax benefits via certain deductions as follows;

  • The maximum deduction under Section 80C (along with deduction u/s 80CCC and 80CCD) is up to INR 1,50,000, making it one of the major tax-saving opportunities. 
  • A taxpayer, being an Individual or a Hindu Undivided Families (HUF) can claim deductions under Section 80C of the Income Tax Act, 1961 by investing in a life insurance policy during the year. In fact, tax benefits are also available on the premium paid for self, spouse and child plans under section 10(10D) of the Income Tax Act, 1961.

To avail of life insurance tax benefits up to a maximum of INR 1,50,000, one can choose from various investment options. These include investing in Term Insurance, and Unit-Linked Insurance Plans (ULIP).

Here are the types of life insurance covered under Section 80C of the Income Tax Act, 1961: –

1. Term Insurance

Term life insurance provides coverage benefits as a lump sum payout or as monthly payments over a predetermined period of time. Under Section 80C of the Income Tax Act, a tax deduction of up to Rs. 1.5 lakhs per year can be claimed on the premium paid.

There’s a variant of term insurance known as TROP (term insurance plan with return of premium) wherein the tax deduction stays the same as regular term insurance however, in case the policyholder survives the complete policy term, he/she receives survival benefits to the insured.

2. ULIP

Unit-linked insurance plans provide investment, insurance, and tax benefits on the invested amount. Amongst the most popular tax-saving investments, the premium paid is deductible up to Rs. 1, 50,000 under Section 80C of the Income Tax Act, 1961.

3. Traditional Whole Life Insurance Plans

Providing coverage for the policyholder’s life term, traditional whole life plans offer death as well as survival benefits. Along with that, there’s a maturity benefit which will depend on whether the plan is a participating or a non-participating one.

In terms of taxation: –

  • Insurance premium on traditional whole life plans is deductible under Section 80C of the Income Tax Act, 1961 up to a maximum limit of INR 1,50,000.
  •  Subject to provisions within Section 10(10D) of the Income Tax Act, 1961, the death benefit is exempt from tax.

4. Child Plans

Child plans are a systematic way of saving and accumulating a corpus that can be used to finance a child’s life goals. These plans also offer tax benefits under Section 80C of the Income Tax Act, 1961 on the premium paid. Along with that, maturity or death benefit and surrender value are eligible for tax benefit under Section 10(10D) of the Income Tax Act, 1961.   

5. Retirement Plans

Retirement plans, also known as pension plans, work in two phases: the accumulation phase wherein your money is invested towards growing your retirement corpus. After that comes the post-retirement phase where one can invest in an annuity product to have a regular income for life.

Premiums paid for retirement plans are eligible for tax deduction under Section 80CCC of the Income Tax Act, 1961 and once the policyholder starts getting a pension (at the vesting age), one-third of the retirement savings can be received as a lump sum amount that is tax-exempt under Section 10(10A) of the Income Tax Act, 1961, subject to certain provisions.   

 Overall, tax benefits on offer under section 80C of the Income Tax Act, 1961 make life insurance a sensible investment option. Choose the right one as per your life goals and financial needs.

By admin

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