- Life insurance aims at getting your family members protected from a financial crisis in the event of death of an earning member
- As per Section 80C of the Income Tax Act 1961, any amount paid towards purchasing a new life insurance policy or renewing it for its term is deductible from taxable income up to the deduction limit of Rs 1.5 Lac
Getting your life insured is the most suitable way to stay prepared for the uncertainties of life. Life insurance aims at getting your family members protected from a financial crisis in the event of death of an earning member. When the bread earner is no more, insurance cover provides the dependents with finances to sustain their lives and dreams. However, the life insurance penetration in the country is dismally low and stood at a meagre 2.7% in 2016. As such, Govt. has been pushing for getting such products more popular for the citizens. Govt. also offers various tax incentives for life insurance products specifically which are being discussed in the subsequent paragraphs.
Deduction on payment of life insurance premium
As per Section 80C of the Income Tax Act 1961, any amount paid towards purchasing a new life insurance policy and premium paid towards it is tax deductible from your income. However, this deduction is subject to the following conditions:
- Policy-wise limit of deduction allowed - The deduction shall be limited to 10% of the sum assured of the life insurance policy. For example, in case the sum assured of a life insurance policy is Rs. 1,00,000, the deduction for life insurance premium paid cannot exceed Rs. 10,000. However, in case the premium is less, only such actual premium paid is allowed as deduction.
- Aggregate limit of deduction allowed - The total deduction from taxable income under Section 80C does not exceed Rs. 1,50,000. So, the deduction on account of life insurance premium paid has to be seen along with other tax-saving options under Section 80C like repayment of housing loan, PPF etc.
Eligible persons for whom such insurance can be taken - Premiums paid on insurance policy in the name of the individual, the wife or husband and any child of such individual is allowed as deduction under this provision.
Tax exemption on receipt of life insurance amount
In order to incentivise taxpayers to opt for life insurance policies, Govt. has also provided Income Tax exemption on any amount received under a life insurance policy (including any sum allocated by way of bonus on such policy) under Section 10(10D) of the Income Tax Act, 1961.
Life Insurance is indeed an important tool to cover the risk of uncertainties in life and one should always ensure to stay adequately covered at all times.