Life is beautiful but also unpredictable and uncertain. So life insurance policy gave us a chance to take care of our loved ones even when we are not there and the government gives tax benefits on the same.
Life Insurance is defined as a contract between Policy holder and Insurance Company, where life Insurance company pays a specific sum insured amount to individual’s family upon his death. The life insurance sum is paid in exchange for specific amount of Premium.
In Short, The policy pays a specified amount called a “Death Benefit “to named beneficiary when insurer dies. When you purchase a life insurance policies your beneficiary could be your child or Spouse or parents.
Let’s understand the tax implications on Insurance Policy
- When you buy a policy you get deduction under Section 80C of Income tax Act. This benefit is applicable to all Life insurance policies.
- The benefit can be availed if policy is purchased from registered companies with proper regulatory body.
- Section 80C defines if policy issued after 1st April 2012, the deduction is available only if premium amount is less than 10% of Sum assured.
- If Policy issued after April 1, 2013 and covers person suffering from illness which are mentioned under section 80DDB or 80U, then deduction is available only if premium Amount is less than 15% of sum assured.
- Here the Word “Sum Assured” simply means the amount assured under the policy to insurer but excluding any bonus or premium on policy.
- Section 80C capped at total deduction of RS 1,50,000/-
- Individual will get deduction under section 80C if insurance premium paid for yourself, child or spouse. Irrespective child is minor or major, married or unmarried, dependant or independent. The deduction is allowed in any case.
Taxable Amount on Maturity
- Section 10 (10D) Specifies about amount taxable on Maturity.
- Amount received on death is not taxable.
- Amount received on Key Man Insurance Policy is taxable.
- Key Man Insurance policy means a policy company buys on the life of a top executive or another critical individual.
- It is needed if the person’s death would be devasting to the future of the company.
- As for the small businesses, the key person might be the owner or founder.
Applicability of TDS on Life Insurance Policy
- If amount received more than 1,00,000 on policy which is covered under deduction of section 10 (10D). Then TDS will be deducted @1% and deducted by insurer before making any payments. And on any bonus payments TDS is applicable.
- And if amount is less than 1,00,000 then no TDS will be deducted.
- And further TDS can be claimed while filing Income tax return.
- If Person is having PAN then TDS is Applicable @1% and if PAN is not available then TDS is applicable @20%.
The Premium paid towards life Insurance plan can be used for tax saving purpose. Life Insurance plans are one of the best tax savings options in India, and they allow you to safeguard future for your loved ones in your absence.