Insurance Policy to Save Tax

Insurance policies are effective tax planning tools because of the tax benefits you get. Here’s the wherewithal to help you use them effectively.

Tool No 1: Life Insurance Policies

Premium paid

Under Section 80C deduction available for life insurance premium paid is limited to Rs. 1.5 lacs per year (within the overall limit for all eligible items under 80C like PPF, EPF, repayment of home loan etc.)

Do keep in mind

  1. For insurance policies issued on or after April 01 2012 the deduction would be restricted to 10% of the actual capital sum assured
  2. For insurance policies issued on or after April 01 2013 the deduction would restricted to :
    • 10% of the actual capital sum assured
    • 15% of actual capital sum assured in case of person with severe disability or specified ailment

Taxability on maturity/surrender

  1. Under Section 10(10D) when the maturity proceeds are received the same will be fully exempt except in following cases:
    • If the premium paid on such policy exceeds 10% of the sum assured in any of the year (15% - in case of person with severe disability or specified ailment)
    • Proceeds of key man insurance is taxable
  2. The following will result in reversal of the tax benefits:
    • Surrender of traditional policies within two years of commencement of policy
    • Surrender of ULIP products within five years of commencement of policy

Tool No 2: Contribution to annuity plan of LIC or any other insurer for receiving pension from a fund set up under a pension scheme.

Contribution paid

  1. Under Section 80CCC deduction available for such contribution made is limited to Rs. 1 lac per year
  2. From AY 2016-17, this limit has been increased to Rs. 1.5 lacs per year

Do keep in mind

Pension received will be subject to tax.

Taxability on maturity/surrender

Surrender/Withdrawal will be subject to tax.

Tool No 3: Contribution to pension scheme of the Central Government (like the National Pension Scheme)

Contribution paid

Under Section 80CCD(1) deduction available for such contribution (made by employee) is limited to Rs. 1 lac per year or 10% of salary of previous year whichever is lower.

Do keep in mind

Pension/annuity received will be subject to tax.

Taxability on maturity/surrender

Surrender/Withdrawal will be subject to tax.

IMPORTANT: Under Section 80CCE, the overall limit for deduction u/s 80C, u/s 80CCC and u/s 80CCD (1) is Rs. 1.5 lacs per year

Tool No 4: Health Insurance Policies

Premium paid

Under Section 80 D deductions available for health / general insurance premium paid is limited to:

AY 2015 -16 From AY 2016 - 17
Rs. Rs.
Individuals 15,000 25,000
Senior citizens 20,000 30,000

Additional deduction allowed for individuals for taking health insurance for parents are:

Parents age AY 2015 -16 From AY 2016 - 17
Rs. Rs.
Under 60 years 15,000 25,000
Above 60 years 20,000 30,000

Do keep in mind

  1. Premium amount cannot be paid in cash.
  2. An individual can claim benefit for premium paid for himself/herself, spouse, dependent children and parents
  3. Deduction is available for payment made for preventive health checkup subject to maximum of Rs. 5,000/- (but this is inclusive in the total limit of Section 80D)

Tool No 5: Health insurance policies for disabled dependents

Under Section 80DD deduction for health insurance premium paid for disabled dependents is limited to:

  1. Rs. 50 thousand every year.
  2. Rs. 75 thousand every year where such dependent is a person with severe disability.

…. So dear tax filer, secure the future of your loved ones by taking insurance and use the available tax benefits to save tax!

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