Income Tax Benefit on Life Insurance Policy: Deduction Under Section 80C & 10D

A significant part of your financial and future planning is formed by life insurance. In case of any unfortunate incident, the amount received can be of great help to your dear ones. Also, with the help of section 80C and section 10(10D) of the income tax act 1961, which deal with deductions related to life insurance, you can save a considerable amount.

The deduction available is on the amount of premium paid by you on the life insurance policy . However, only life insurance policies that cover you or your spouse or your child (irrespective of the child's age) fall under the ambit of deduction. The insurer can be any of the insurers that are authorized by the IRDAI.

• It is below the overall limit of the exemption provided under section 80C, i.e. Rs. 1,50,000. And
• It does not exceed 10% of sum assured if the policy is taken after 1-04-2012

• If the policy is taken before 31-03-2012, the amount of premium should not exceed 20% of the sum assured.

1. This amount is below the overall limit of Rs. 1,50,000 of the section. and
2. This amount is less than 20% of the amount assured. (20% of Rs. 7,00,000 = Rs. 1,40,000)

• Eligibility: Any individual and Hindu Undivided Family (HUF).
• Amount of Deduction: As per the provisions, the amount of premium that you pay for your insurance can be claimed as a deduction if;
• However,
• Let's understand with an example .Jay takes a life insurance policy which offers him an assured sum of Rs. 7,00,000. He takes this policy on 1-10-2011 and then pays a premium of Rs. 50,000 till the closure of the financial year.Assuming he didn't have any other deduction to claim under section 80C , he can claim this total amount of Rs. 50,000 as a deduction because;
• Now let's say he took this policy on 1-04-2013 and pays a premium of Rs.1,50,000.In this case, he cannot claim this deduction as his overall premium payment exceeds 10% of his sum assured.

Section 80C(5)

• If you surrender your policy voluntarily.
• Termination of policy within 2 years of commencement.

For Unit Linked Insurance Plans (ULIPs)

• If you voluntarily surrender your plan.
• If your plan is terminated 5 years from commencement.

Eligibility:

Any individual assessee or HUF.This deduction is available on the entire amount received on maturity of the policy. It also covers the amount of any bonus received.

The amount of premium

• Should not exceed 10% of the assured sum, if the policy is taken after 1-04-2012
• Should not exceed 20% of the sum assured if the policy is taken before 31-03-2012

The deduction under section 80C and section 10(10D) is also available to persons having any disability or disease mentioned under the act. In this case, the quantum of premium should not exceed 15% of the sum assured if the policy is taken after 1-04-2013.

Calculating tax savings on life insurance can be much-needed help in a crisis. The income tax act provides deductions to encourage more people to opt for life insurance. Get your life insurance today and reap the benefits provided by the income tax act.

The information contained herein is generic in nature and is meant for educational purposes only. Nothing here is to be construed as an investment or financial or taxation advice nor to be considered as an invitation or solicitation or advertisement for any financial product. Readers are advised to exercise discretion and should seek independent professional advice prior to making any investment decision in relation to any financial product. Aditya Birla Capital Group is not liable for any decision arising out of the use of this information.