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Tax

Post By Madhurima Pawar

Life Insurance - Income Tax Deduction Under Section 80C

Many invest in life insurance policies with a view to save tax.

Tax deductions can be claimed under Section 80C of the Income Tax Act, 1961 for premiums paid towards life insurance policy. For each financial year, the maximum amount of deduction you can claim under this section is ₹1,50,000. Only an individual or a Hindu Undivided Family can avail tax benefits on premiums paid for life insurance.

Who should take the policy?

In case of an individual, tax deduction is allowed for premium paid for insuring self, spouse and children. In case of a Hindu Undivided Family, tax deduction can be claimed for coverage taken in the name of any of the members of the Hindu Undivided Family. No tax benefits can be availed for premiums paid in respect of policy taken for any person other than those mentioned above.

Restriction on amount of deduction

In case of insurance policies issued on or before 31-3-2012, tax deduction are restricted to the extend of 20% of the capital sum assured. For insurance policies issued on or after 1-4-2012, these deductions are restricted to 10%. For any life insurance policies taken on or after 1-4-2013 for any individual suffering from disability or severe disability (referred to in section 80U) or from some ailment or disease (as given in section 80DDB), the limit will be 15% of the capital sum assured.

Conclusion

Deductions can only be claimed under Section 80C of the Income Tax Act as long as you are making premium payments. Your tax benefits shall be reversed if your insurance policy is terminated or surrendered within two years (five years in case of ULIPs) from the date of commencement of the life insurance plan.