FAQs on Life Insurance policies and Income Tax
Here you will find the answer to almost every query related to Insurance premium deduction u/s 80C of Income tax Act.
1) When I can claim the deduction of life insurance premium u/s 80C of Income Tax Act?
If you have paid an insurance premium to insure your own life or your spouse or children
you will be eligible for deduction u/s 80C
2) Can I pay premium for insurance of dependent child also?
Deduction will be available on insurance premium paid for insurance of self, spouse and child.Even if your child is not dependent on you.
3) If deduction is allowed for all kind of policies?
Deduction will be restricted if the premium paid is more than 10% of sum assured.
4) Should I buy the single premium plan?
From income tax point of view single premium plans will not suit you because in those cases premium is generally more than 10%(person with disability as referred u/s 80U or suffering from disease as specified u/s 80DDB is eligible for 15% ) of sum assured. You wont be able to get deduction of 80C . Also due to application of section 194DA of Income tax Act the sum you will receive on maturity will be eligible for TDS @ 2%. Also the sum received at the time of maturity or any bonus will also be taxable.
5) Amount received at the time of maturity will also be exempt from tax?
u/s 10(10D) amount received on maturity will also be exempt. But if the premium paid is more than the 10% (person with disability as referred u/s 80U or suffering from disease as specified u/s 80DDB is eligible for 15% ) of sum assured then this exemption will not be applicable
6) My policy was lapsed so I paid additional premium to restore it. If this amount will also be eligible for exemption u/s 80C?
yes , even the interest and penalty paid to keep the policy in force are allowed to be deducted u/s 80C.
7) What is the maximum amount allowed u/s 80C to be deducted for Insurance premium?
Maximum amount allowed u/s 80C for insurance premium is Rs. 1,50,000.
8) What will happen if I sold/terminate the policy?
Amount allowed to you in earlier years as deduction will become taxable and will be added to your total income in current year.
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CA Shafaly Girdharwal
CA
New Delhi, India
CA Shaifaly Girdharwal is a GST consultant, Author, Trainer and a famous You tuber. She has taken many seminars on various topics of GST. She is Partner at Ashu Dalmia & Associates and heading the Indirect Tax department. She has authored a book on GST published by Taxmann.
