We help you figure out how to legally save tax on your insurance policies.
Buying insurance policies in India is a rewarding task, not just because of the protection they provide in times of need. They also provide tax benefits – read on to know how this works.
Which type of insurance are tax saving schemes in India?
Consider the list of insurance policies that offer tax savings every year:
- Life insurance: Endowment, unit linked insurance (ULIP), Money back, whole life, term plan
- Child plans
- Retirement plan
* Tax saving on life insurance
- The premiums paid against life insurance policies (term, money back, ULIP, endowment plans) are tax deductible under Sec 80C. The tax benefit is extended up to Rs 1.5 lakh per year.
- However, the deduction is given subject to the premium not exceeding 10% of the sum assured, for policies issued after April 1, 2012.
- If the life insurance plan was issued before April 1, 2012, then the tax benefit is liable for plans whose premiums do not exceed 20% of the sum assured.
- Meanwhile, if the life insurance policy is issued after April 1, 2013 for a person suffering from a disability (outlined in Sec 80U or under Sec 80DDB), then the maximum deduction permitted is 15% of the policy’s sum assured. However, if the insured passes away before the person paying the policy premium, then the death benefit is treated as income and taxed as per existing tax slabs.
- The life insurance pay-out from the insurance provider paid in the form of maturity benefit to the policy holder, or as death benefit to the policy holder’s nominee, is exempted from tax under Sec 10(10D).
* Tax saving on health insurance
- As per current IT laws, you can claim a tax benefit of up to Rs 25,000 on the premiums paid for health insurance policy for yourself, your spouse, dependent children, and dependent parents.
- The benefit is extended up to Rs 30,000 for health policies taken for senior citizens. You can claim the tax deduction under Sec 80D.
- However, this tax saving is extended only to critical illness and mediclaim plans. You cannot claim deduction for personal accident/accidental benefit policies.
- Also, payments made in cash to the insurance provider are not counted for tax deduction, even if you furnish a receipt for the same. Only health check-ups can be paid for in cash and presented for tax benefit. The check up amount cannot exceed Rs 5,000 for yourself/spouse/dependent children/parents.
* Tax saving on child insurance
Child insurance plans get a tax deduction of Rs 1.5 lakh against premiums paid, and exemption on the pay-out under Sec 10(10D).
* Tax saving on retirement plans
The current IT laws present tax benefit on premiums paid towards retirement/pension plans up to Rs 1 lakh per year, under Sec 80CCC.