Tax benefit on Premiums paid for Life insurance, Pension plans, medical insurance and taxability of sum received under life insurance policy

Premiums paid for Life insurance – Deduction under Section 80C

• Category of assesses allowed deduction: Individual assessee and Hindu Undivided Family assessee.
• Eligible Savings: Premiums paid or deposited by assessee to effect or to keep in force insurance on the life of following persons:
  In case of individual assessee – Himself/Herself, spouse, children of such individual
  In case of HUF assessee – any member
• 20% limit: If the amount of premium paid in a financial year for a policy is in
  excess of 20% of the actual capital sum assured, then deduction will be allowed only for premiums upto 20% of the sum assured.
• Limit on amount of deduction: Deduction will be restricted to investments upto Rs 100,000 in savings specified under Section 80C (including life insurance premiums). The limit of deduction under Section 80C will be part of the overall limit prescribed under Section 80CCE.
• Disallowance: This benefit will be reversed if the policy is terminated/cease to be inforce within 2 years after the date of commencement of policy.

Premiums paid for Pension plans – Section 80CCC

• Permitted Deduction: Section 80CCC allows for deduction of premiums paid under a pension scheme. As per this Section, the whole of amount paid or deposited (excluding interest or bonus accrued or credited to the assessee’s account, if any) as does not exceed the amount of Rs 100,000 is eligible for deduction from the total income.
• Receipt under Policy: Amounts received on surrender (whole/part) of annuity plan, amounts received as Pension is taxed as income.
• Limit: The limit of deduction under Section 80CCC will be part of the overall limit prescribed under Section 80CCE.

Overall deduction limit – Section 80CCE

As per this section, the maximum amount of deduction that an assessee can claim under Sections 80C, 80CCC and 80CCD will be limited to Rs 100,000.

Premiums paid for medical insurance – Section 80D

• Category of assesses allowed deduction: Individual assessee and Hindu Undivided Family assessee.
• Eligible premiums: Premiums paid by assessee by any mode other than cash out of his taxable income to effect or to keep in force an insurance on the health of following persons:
  In case of individual assessee – Himself/Herself, spouse, dependent children and parent or parents. The condition of dependency of parent has been removed from FY 2008-09. In other words, even if the parent is independent, the individual can pay the premium and claim the deduction.
  In case of HUF assessee – any member of HUF
• Deduction and upper limit: The qualifying amounts under Section 80D for self, spouse and dependent children is upto Rs. 15,000/- and additional deduction upto Rs. 15,000/- for the parents. However, a higher amount of upto Rs 20,000/- is permitted if the person, for whose health insurance the premium was paid, was aged 65 years or more at any time during the financial year in which the premium was paid. Such amounts of premium paid would be allowed as deduction from the total income of the assessee.

Benefits under insurance policy – Section 10(10D)

As per Section 10(10D) of Income tax Act, 1961, any sum received under a life insurance policy, including the sum allocated by way of bonus on such policy is exempt from tax.

However, this rule does not apply to following amounts:

• sum received under Section 80DD(3), or
• any sum received under a Keyman Insurance Policy, or
• any sum received other than as death benefit under an insurance policy which has been issued on or after April 1 2003 and if the premium paid in any of the years during the term of the policy is more than 20% of the sum assured.