Premium paid on life insurance policies entitles you to tax benefits. Read on to find out more about this.
What are the tax benefits available to an individual in respect of premium paid on life insurance policies?
Rebate under Section 88 is available in respect of life insurance premium only up to the assessment year 2005-06. From the assessment year 2006-07, life insurance premium paid by an individual qualifies for a deduction under Section 80C of Income Tax Act, 1961. An individual can claim deduction on premium paid for a maximum of Rs 100,000 in each financial year.
Deduction under Section 80C is a deduction from gross total income. Amount deductible under Section 80C is equal to:
What are the tax benefits available under pension plans?
Under Section 80CCC, where an individual assessee has paid/deposited any amount for any annuity plan of the Life Insurance Corporation of India or any other insurer receives pension from a fund referred to in Section 10(23AAB), he/she will be allowed a deduction up to Rs 10,000 from the total income.
Under Section 80CCD, where an assessee, being employed by the central government on or after January 1, 2004, deposits any amount in his account under a pension scheme notified by the central government, a deduction up to a maximum of 10% of his salary is allowed. When the central government makes any contribution to the notified pension scheme it is deductible in the hands of the concerned employee up to a maximum of 10% of his salary.
Any income of a fund set up by the Life Insurance Corporation of India on or after August 1, 1996 or any other insurer to which contribution is made by any person for receiving pension from such fund, and which is approved by the Controller of Insurance or the Insurance Regulatory and Development Authority, has been exempted from income tax under Section 10(23AAB).
From the assessment year 2006-07, the deduction aggregate, under Section 80C, 80CCC and 80CCD cannot exceed Rs 100,000.
Section 80CCC and 80CCD have been amended with effect from the assessment year 2006-07 so as to provide that where any amount paid or deposited by the assessee has been allowed as a deduction under Sections 80CCC and 80CCD, a deduction with reference to that amount shall not be allowed under Section 80C.
Are maturity proceeds on life insurance and pension policies taxable?
The maturity proceeds of life insurance policies are not taxable. However, under pension plans, up to one-third of the maturity amount can be withdrawn in cash and the same is treated as tax-free. An annuity has to be purchased with the remaining two-third amount.
Pension receipts from the same will be treated as income in the hands of the assessee and taxed accordingly.
Can tax benefits be claimed if the premium is paid by an individual on his/her spouse's policy?
Tax rebate under Section 88 can be claimed if the premium is paid by an individual on his/her spouse's policy but up to the assessment year 2005-06. From the assessment year 2006-07 life insurance premium paid by an individual on his/her spouse's policy qualifies for a deduction under Section 80C of Income Tax Act, 1961.
If a person discontinues paying premium on his life insurance or a pension policy, does he get tax benefits?
If a person stops paying premium amounts on his/her life insurance policy, it amounts to discontinuation of the policy. Hence, he is not entitled to claim any tax benefits.
If a taxpayer discontinues the life insurance policy before premiums have been paid for a period of 2 years from the commencement of the policy, no tax deduction is allowed in respect of any premium paid on that policy in the year in which the policy is terminated.
Further, the amount of tax deduction, allowed for the premium paid in the preceding year, is also treated as the tax payable for the year in which the policy is terminated.
If a person, participating in a Unit Linked Insurance Plan (ULIP), terminates his policy, can he claim any tax benefits on the same?
If a person participates in a Unit Linked Insurance Plan (ULIP) and then terminates his participation, he will not be entitled to claim any tax benefits.
What are the deductions available in respect of a medical insurance premium?
The premium paid for medical insurance qualifies for rebate under Section 80D as follows: