A few days ago, I was looking for a life insurance policy. I wanted to make sure that my family was financially taken care of in case something unfortunate happened to me. This was a significant financial move for me, considering I just got married and am the primary breadwinner of my family, which makes me financially responsible towards my spouse and my parents (both of whom are senior citizens).

Well, I got a great term insurance policy for myself, but here’s something I realised - my life insurance policy wasn’t just offering my family a financially secure future in the event of my unfortunate absence but was also offering a couple of tax benefits.

Now, as someone who banks on their CA to get the taxes filed, swimming through the taxation details seemed a bit, well, “taxing”!

So, while my CA explained this to me, let me break down the tax benefits of life insurance plans in India in simple terms! Make sure to read this before you go ahead with a term insurance policy or any other type of life insurance plan!

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Tax Benefits on Life Insurance Plans in India for 2024

What are the tax benefits in life insurance policies under Section 80C?

Section 80C of the Indian tax code lets you reduce your taxable income by investing in specific financial products. You can claim a maximum deduction of ₹1.5 lakhs. Here’s a quick overview:

  1. Term Insurance Policy
  • What It Is: Provides a lump sum to your family if something happens to you.
  • Tax Benefit: Premiums are deductible. For example, ₹25,000 in premiums can reduce your taxable income by ₹25,000.

2. Life Insurance Policies

  • What It Is: Offers both a death benefit and additional savings or investments.
  • Tax Benefit: Premiums are deductible, but for better returns, consider combining with an ELSS.

3. ULIPs (Unit Linked Insurance Plans)

  • What It Is: Combines insurance with investment.
  • Tax Benefit: Deductions up to ₹1.5 lakhs. However, high charges and lower returns make term policies and ELSS a better choice.

4. Equity Linked Savings Scheme (ELSS)

  • What It Is: Invests mostly in stocks with a 3-year lock-in period.
  • Tax Benefit: Deductions up to ₹1.5 lakhs and often offers better returns.

5. Home Loan Principal Repayment

  • What It Is: Deductions on the principal portion of your home loan.
  • Tax Benefit: Up to ₹1.5 lakhs per year.

6. NPS (National Pension Scheme)

  • What It Is: A retirement savings plan with Tier 1 and Tier 2 accounts.
  • Tax Benefit: Deductions up to ₹1.5 lakhs for Tier 1 contributions plus an additional ₹50,000 under Section 80CCD (1B).

7. Employee Provident Fund (EPF)

  • What It Is: Retirement savings with contributions from you and your employer.
  • Tax Benefit: Deductions up to ₹1.5 lakhs.

8. Public Provident Fund (PPF)

  • What It Is: Long-term savings with a 15-year lock-in.
  • Tax Benefit: Deductions up to ₹1.5 lakhs.

9. National Savings Certificate (NSC)

  • What It Is: Fixed-income investment with a 5-year lock-in.
  • Tax Benefit: Deductions up to ₹1.5 lakhs.

10. Tax Saving Fixed Deposits (FDs)

  • What It Is: Fixed deposits with a 5-year lock-in.
  • Tax Benefit: Deductions up to ₹1.5 lakhs.

11. Sukanya Samriddhi Yojana (SSY)

  • What It Is: Savings scheme for a girl child with a 21-year lock-in.
  • Tax Benefit: Deductions up to ₹1.5 lakhs.

What are the tax benefits in life insurance policies under Section 10(10D)?

Life insurance helps financially protect beneficiaries and offers tax benefits under Section 10(10D) of the Income Tax Act of 1961. Though some conditions apply, this section lets beneficiaries receive life insurance payouts tax-free, covering both death and maturity benefits.

  1. What are the key points for Section 10(10D)?
  • Death Benefits: These are entirely tax-free under Section 10(10D) with no eligibility criteria.
  • Maturity Benefits: These can also be tax-free if your policy meets certain criteria:
  • Premiums must not exceed specific limits based on when you bought the policy.
  • Premiums should not exceed 10% of the sum assured for policies bought after April 1, 2012. Different limits apply for policies purchased on or after April 1, 2023, and February 1, 2021.

2. What are the exclusions for Section 10(10D)?

  • Keyman Insurance Policies are excluded.
  • Amounts received under Sections 80DD(3) and 80DDA(3) are also excluded.

3. For ULIPs and Endowment Plans: Death benefits are tax-free, but maturity benefits depend on meeting certain criteria. It’s a good idea to consult a professional to understand the specific tax benefits based on your policy type and when you bought it.

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