FAQs Associated With Tax Exemptions Under Life Insurance
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Buying a life insurance plan is very important for people who have dependent family members. The policy will help you protect the financial future of your parents, spouse,and children. When it comes to finding a suitable life insurance cover, insurance companies in India provide a variety of choices. When buying a suitable life plan, make sure to learn about the life insurance tax implications so that you can plan your finances accordingly.
Frequently Asked Questions About Tax Benefits Of Life Insurance
Here are the important taxability instances that you need to keep in mind
1. What Is Tax Deduction under Section 80C?
Under Section 80C of the Indian Income Tax Act, 1961, any premium paid towards a life insurance plan for yourself, your spouse, and your children is tax-deductible.An important point to remember is that to get the benefit for any policy issued on or after April 1, 2012, the premium you pay should not be more than 10% of the sum insured.
2. What is the Tax Exemption under Section 10(10D) on the maternity benefit?
Section 10(10D) of the Income Tax Act allows tax exemption on the maturity benefit and bonuses received from your life policy. To be eligible for this income tax deduction the premium you paid must not be more than 20 % of the sum assured for policies issued before April 1, 2012, and 10% for the policies issued after April 1,2012.
3. What happens when the maturity benefit is taxable?
There are certain situations when Section 10(10D) does not apply to the maturity benefits. If the premium you paid towards the life insurance policy is more than 10% of the sum assured for policies issued after April 1, 2012, you will not receive the tax benefit. For policies bought before 1st April 2012, if the premium paid is over 20% of the sum assured then you will not be eligible for the tax benefit. This rule for taxability of the life insurance maturity amount is an important one to remember.
4. What is TDS on the life insurance policy?
Since October 2014, insurance companies are eligible to implicate 1% Tax Deducted at Source (TDS) on the life insurance benefit if the amount is more than INR 1 lakh. It was raised to 5% from the previous TDS of 1% in the Union Budget 2019. TDS is also applicable to the bonuses received by you. When filing your tax return,you are entitled to receive credit for the TDS charged by the insurer.
5. What are the Tax implications of single premium life insurance policies?
For a single premium payment life insurance policy,the premium paid is often more than 10% of the sum assured. Hence, the maturity benefit of the policy will be taxable. For example, if you had bought a policy with a maturity value of INR 1.1 lakh on September 16, 2013, the single premium will be approximately INR 45,000, which is over 10% of the sum assured. If you surrender the policy on September 16, 2019, the insurer will charge 5% TDS on the net maturity proceeds.When you are purchasing term insurance, remember the aforementioned tax implications. You will need to consider them when filing for your tax return.
Conclusion
Think about securing your family and getting tax savings as a cookie. Because, all the premiums paid, and the sum assured received are completely tax exempted under the Section 80C and 10(10D) of Income Tax Act, 1961 respectively.
Also read- What Is A General Provident Fund And How Does It Work
