Insurance Policies Tax Benefits
Insurance Policies completely live up to the Phrase "Icing on the Cake!!!". Insurance policies do not only safeguard your life and health but also gives you tax benefits for the premium paid and maturity amount received.
The very first step of a successful tax or financial planning start with getting yourself adequately Insured.
Let's see how you can save tax through Insurance Policy in India.
Life Insurance Tax Benefit
Life Insurance Policy is a traditional plan which includes term plans, ULIPS (unit linked insurance plans), money back and whole life cover plan. All the plans except term plan are mix of investment as well as insurance, term plan gives your pure insurance. But for the purpose of taxation all these plans are treated same and the tax treatments of all plans are same.
Tax benefit on Life Insurance Policy in India
Premium Paid
- Premium paid is eligible for deduction u/s 80C of the I-T Act.
- Maximum deduction is Rs.1.50 lakh u/s 80C.
- Premium must be paid through check, credit card or online transfer, cash payment of premium is not allowed for deduction.
- Minimum sum assured for claiming deduction should be 10 times of the premium paid.
2. On Maturity:
Insurance Sum received on maturity is completely tax-free u/s 10 of the I-T Act.
3. On the Death of the Policy Holder:
Insurance Sum received on the death of the assesse by his family or legal heirs is completely tax-free u/s 10 of the I-T Act. But a death certificate of the policy holder is required to be given to the insurer along with the other documents to claim the insurance amount.
Health Insurance Tax Benefit or Mediclaim Policy
The earning members of most of the Indian households are one or two while they have dependent children and dependent parents to look after. Due to increasing cost of medical treatment Health Insurance Policy or mediclaim policy has become must for every household. Along with covering the cost of the medical expenses it also gives you tax benefits.
Tax benefit on Health aka Medical Insurance India
Premium Paid:
Under Section 80D of the I-T Act assesse can claim the deduction for premium paid for Health Insurance or Mediclaim Policy for up t0 Rs.25,000 p.a. for himself, his spouse and his children. In case he also buys Health Insurance or Mediclaim Policy for his dependent parents than a separate deduction of Rs.25,000 will also be allowed for deduction and if his parents are senior citizen (60 years or above) than deduction will be of Rs.30,000. This means an assesse can get maximum benefit of Rs.55,000 u/s 80D.
But to claim the deduction, few conditions have to be met:
- Assesse should be an individual or HUF (Resident or NRI).
- The premium is paid by any mode other than cash. Payment by cash does not qualify for deduction.
- Receipt of Mediclaim Premium is required for claiming deduction as a proof of payment.
Insurance Sum Received:
Any sum received from the insurer against the health insurance policy or mediclaim policy does not constitute your income and thus would be exempt. The sum received from insurer is mere a reimbursement of expenses you have incurred. Thus it would completely be tax-free. Suppose you have received Rs.1 lakh against the mediclaim policy than this amount would not be taxable as your income, since this is just a settlement of the medical expenses you have already incurred and there is no element of the income in your claim.
Many of the Insurance Companies have started Cashless Health Insurance Schemes, under which you don't need to pay any amount to the medical institutes. The medical bills are directly paid to the medical institute by TPA/Insurance Company.
Tax Benefits of Pension Plans
Pension Plans or Annuity Plans have a very different tax treatment from life insurance or health insurance plans.
Tax benefit on Pension Plans in India
Premium Paid:
- The Amount of Premium paid towards pension plans is eligible for deduction u/s 80CCC (sub-section of 80C).
- The Maximum limit is Rs.1.50 lakh which is of 80C.
- The Premium should be paid either by check, credit card or online transfer, cash payment does not qualify for deduction.
Sum Received
1. On Surrendering the Policy before Maturity:
In case the policy is surrendered before the maturity there will be two effects:
- All the Deductions of Premium which have been taken shall be added back and tax has to be paid on them.
- 1/3rd of the amount received shall be treated as your income and taxable as per the slab rate. Remaining 2/3 of the amount must be used to purchase annuity plans as specified by IRDA. The monthly income from this annuity plan will be added to your income and taxed accordingly.
2. On Maturity:
On maturity the 1/3 of the sum received will be tax-free and remaining 2/3 of the amount shall be used to purchase annuity plans as specified by IRDA. The monthly income from this annuity plan will be added to your income and taxed accordingly.
3. On the Death of the Policy Holder:
The sum received by the family or legal heirs upon death of the policy holder is completely tax-free under section 10(10D) of the I-T Act.
Due to the tax benefits Insurance Policies have become one of the most favoured investments of Indians but one has to read the terms carefully before going for any policy.
Insurance Sum Received:
1. On Surrendering Policy before maturity:
In case the policy is surrendered before the maturity than the whole sum received from the Insurer will be taxable, if 5 premiums have not been paid. If you have surrendered the policy after paying 5 premiums than the amount received from the insurer would be tax-free.
Best Tax Saver Mutual Funds or ELSS Mutual Funds for 2015
1. BNP Paribas Long Term Equity Fund
2. Axis Tax Saver Fund
3. IDFC Tax Advantage (ELSS) Fund
4. ICICI Prudential Long Term Equity Fund
5. Religare Tax Plan
6. Franklin India TaxShield
7. DSP BlackRock Tax Saver Fund
8. Birla Sun Life Tax Relief 96
9. Reliance Tax Saver (ELSS) Fund
10. HDFC TaxSaver
Invest Rs 1,50,000 and Save Tax under Section 80C. Get Good Returns by Investing in ELSS Mutual Funds Online
Invest in Tax Saver Mutual Funds Online
For further information contact Prajna Capital on 94 8300 8300 by leaving a missed call
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