Along with providing financial security for your family, life insurance lets you save taxes. Many Indians purchase insurance essentially for this purpose. You’ve come to the right place if you’re trying to figure out which life insurance income tax section applies to you.
How One Uses Life Insurance to Save Taxes
Tax advantages could come from the premium you pay for a life insurance policy as well as from the money your family gets should death or maturity strike. Particular Income Tax Act sections let this be done.
Let’s examine the primary life insurance income tax sections.
Section 80C: Deduction for Premium Payments
Your paid life insurance premiums can be deducted.
A financial year’s limit is up to ₹1.5 lakh.
This advantage relates to policies adopted for:
- Self
- Mate
- Young children—dependent or independent
Policies issued after April 1, 2012: Premium should not be more than 10% of sum assured.
Should the premium exceed ten percent, the deduction is limited.
Section 10(10D) – Tax-Free Maturity Value
On maturity or death, the sum you or your nominee get is tax-free.
The tax-free amount has no upper limit.
Terms for tax-free maturity:
- Policy has to satisfy the 10% rule premium-to-sum assured ratio.
- The policy cannot be a high-premium one issued following April 1, 2023, with an annual premium exceeding ₹5 lakh (in which case tax may be due).
Section 80DD and 80DDB – Special Cases
Although these are not direct life insurance income tax sections, some benefits may also fall under these areas should your insurance include disability or critical illness riders.
For whom can one claim these benefits?
- Salaried workers
- Entrepreneurs
- People in business
- Including NRIs paying taxes in India
Advice on Optimal Tax Benefit
- To stay under ₹1.5 lakh, mix life insurance with other 80C investments.
- For low premium and complete 80C benefit, choose term insurance.
- Before you purchase a policy, find the premium-to-sum assured ratio.
- Early policy surrendering could result in a cancellation of your tax advantage.
In conclusion
You can make wise plans if you are aware of the appropriate life insurance income tax Section. Simultaneously, you save on taxes and guard your family. Therefore, keep in mind the tax laws when you purchase or renew your life insurance; they significantly affect you!