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Life insurance policies are an excellent option to financially protect yourself and your family. These policies are primarily categorised as whole and term policies. Whole life insurance policies offer protection throughout your lifetime. Term insurance, on the other hand, offers protection for a fixed period.

 

Apart from financial protection, these policies offer tax benefits per the Income Tax Act, 1961. The life insurance tax benefits are available for the premium and maturity amounts. This enables you to save more and secure better financial growth.

 

Read on to learn what the tax benefits are and how you can claim these benefits.

Tax Benefits on Life Insurance

As per the Income Tax Act, you can enjoy multiple tax benefits of a life insurance policy. Since these benefits are available at the time of premium payment and maturity, you and your family can enjoy the benefits. 

 

Your family members can enjoy the tax benefits by being the nominee to your policies. Life insurance providers allow you to include your spouse, children, or parents, as the nominee of your policy. This makes them eligible to receive the insured amount and enjoy life insurance tax benefits on maturity. 

 

However, the tax benefits are available under certain conditions as per certain sections stipulated in the Income Tax Act. As such, you need to understand the different life insurance tax benefits sections and maximise your savings.

1. Tax Benefit Under Section 80C 

Life insurance tax benefit under Section 80C is available as a deduction for the premium you pay. This enables you to lower your taxable income, reducing your tax liability. The maximum amount you can claim as deduction u/s 80C is ₹1.5 Lakhs. 

 

However, the deduction is restricted to 20% of the sum assured for policies taken before 31st March 2012 and 10% for policies taken on or after 1st April 2012. Moreover, the limit is inclusive of other schemes and investments eligible for tax benefits under the section. 

 

So, remember to plan your investments accordingly. Remember that this life insurance tax benefit is only available if the policy is taken under your name (individual taxpayer) or in the name of your spouse/ children. For HUFs, the deduction is available if the policy is in the name of any member of the HUF.

2. Tax Benefits Under 80D

As per Section 80D, tax benefits of a life insurance policy are available when it is a term insurance rider to your base plan. Here, you can claim a deduction for the premium you pay in modes other than cash. 

 

Under the section, you can claim a deduction of up to ₹25,000 if the policy is for you, your spouse and children under 60. For dependent parents over 60, you can claim up to ₹50,000 as a deduction. 

 

As such, you can claim a max life insurance tax benefit of ₹75,000 as a deduction u/s 80D. However, remember that you need to meet the specified conditions to claim the life insurance tax benefits under Section 80D.

3. Exemption Under 10(10D)

As per Section 10(10D) of the Income Tax Act, the amount you receive from your life insurance policy is eligible for exemption from taxation. Under this section, any proceeds received in case of the death of the policyholder are exempt. There is no upper ceiling and the full claim enjoys this benefit. 

 

With this information, you can plan your taxes to save more while ensuring financial protection. To enjoy the maximum tax benefits of a life insurance policy, plan your other investments accordingly. Remember to carefully go through the applicable life insurance tax benefit sections. 

 

This is because different entities can claim benefits under different sections and conditions. Being aware of this enables you to get the max life insurance tax benefit by way of deductions and exemptions and secure financial protection and growth.

FAQs on Life Insurance Tax Benefits

How much tax benefit can I get under Section 80D?

Under Section 80D, you can claim a deduction of ₹25,000 on health insurance premiums for yourself, your spouse, and children. For senior citizens, the limit is ₹50,000. You can also claim ₹5,000 for preventive health check-ups.

Is life insurance exempt from income tax?

Life insurance payouts can be tax-exempt under Section 10(10D) of the Income Tax Act, and premiums paid are deductible under Section 80C, subject to certain conditions.

How much tax can I save on life insurance?

Under Section 80C, you can save up to ₹1.5 lakh on life insurance premiums for policies covering yourself, your spouse, and your children.

What are the life insurance tax benefits under section 10(10D)?

Under Section 10(10D) of the Income Tax Act of 1961, the amount received from your policy is exempt from taxation. However, this is only when the funds are released under specific conditions.

What is the maximum amount of deduction you can claim on life insurance u/s 80C?

The maximum life insurance tax benefit under Section 80C is ₹1.5 Lakhs for the premium paid. However, the deduction is restricted to 20% of the sum assured for policies issued before 31-03-2012 and 10% for policies issued on or after 01-04-2012. Moreover, the limit is inclusive of other eligible schemes and avenues. 

What are the eligibility criteria to claim a tax deduction on life insurance?

To claim life insurance tax benefits, you need to meet the specific criteria and conditions mentioned in the applicable section. For example, exemption u/s 10 (10D) is available when funds are released as a bonus, death benefit, or other conditions specified. 

What is the tax on the maturity of a life insurance policy?

The amount received on maturity is eligible for life insurance tax benefit under Section 10 (10D), wherein it is exempt from taxation. Therefore, you do not have to pay any tax on the total amount at maturity.

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