Life insurance Policy – Taxability & Tax Benefits
Life insurance is one of the primary and essential requirements of ensuring a financially balanced and comfortable life for your loved ones.
The capital benefits that come with life insurance help your family build a safe and safeguarded future, even in your absence. Moreover, under Section 80C and 10D of the Income Tax Act, there are income tax benefits on life insurance.
Under section 80C, premiums that you pay towards a life insurance policy qualify for a deduction up to ₹1.5 lakh, while Section 10(10D) makes income on maturity tax-free if the premium is not more than 10% of the sum assured or the sum assured is at least 10 times the premium.
Deduction under Section 80C:
If you have paid an insurance premium to insure your own life or the life of your spouse or child, such premium payments are eligible for deduction under section 80C of the Income Tax Act.
Exemption under section 10(10D) on Maturity amount received:
When the premium paid on the policy does not exceed 10% of the sum assured for policies issued after 1 April 2012 and 20% of sum assured for policies issued before 1 April 2012– any amount received on maturity of a life insurance policy or amount received as bonus is fully exempt from Income Tax under Section 10(10D). Also covered here are policies taken after 1 April 2013, on the life of a person with a disability or a disease specified under Sections 80U and 80DDB respectively, where the amount received on maturity is tax-free provided the premium paid does not exceed 15% of the sum assured.
TDS on life insurance policy
Starting October 2014, if the amount received from a life insurance policy is more than Rs 1,00,000, on policies not covered under an exemption under Section 10(10D), then TDS @ 1% shall be deducted by the insurer before making this payment. TDS will also be deducted on bonus payments. If the amount received is less than Rs 1,00,000, no TDS shall be deducted but the amount received shall be fully taxable for you.
Tax liability of single premium insurance policies
Taxpayers may not be sure about how payouts from a single-premium insurance policy must be treated. Let us understand the taxability with an example. Consider that Sandesh had taken a policy from an insurance company with a maturity value of Rs 1,10,000. He paid a single premium of Rs 45,000 on 16 September 2013. 10% of the premium works out to be Rs 11,000. The premium of Rs 45,000 exceeds 10% of the sum assured. Therefore, the insurance maturity proceeds are taxable, and not entitled to exemption under section 10(10D) of the Income Tax Act.
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