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Tax Savings
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Life insurance is one of the most popular savings/ investment mediums available in India. Ironically, it is probably the least understood too. An insurance policy offers much more than just tax planning and investment returns. It offers you the ability to plan for unforeseen events and protects you from unfortunate losses.
Deductions from gross income
Sec 80C
Deductions up to Rs. 1, 00,000 available.
The benefit for life insurance premium u/s 80C is restricted to 20% of the actual capital
sum assured.
Surrendering the plan before paying premium for two years will result in a reversal of the
tax benefit.
80CCC
Deduction in respect of contributions to pension funds.
Maximum Rs 10,000
Surrender/Withdrawal will be subject to tax.
Pension received will be subject to tax.
Sec 80 CCE
Under section 80CCE, the overall limit for deductions u/s. 80C, u/s. 80CCC and u/s. 80CCD is
Rs. 1,00,000.
80D
Deduction in respect to medical insurance premium.
Individual or HUF, whether resident or non-resident.
Maximum Rs. 10,000; an additional Rs 5,000 for senior citizens.
Exemption from the proceeds.
Commuted pension: 10(10A)(iii).
One-third of the value at vesting date would be tax free.
Life insurance proceeds
10(10D)
Any sum received from insurance policy as maturity proceeds or death benefits.
Proceeds of Keyman Insurance are taxable.
Single premium policies will be taxed as income in the year it is received, assuming that premium exceeds 20% of the sum assured.
An insurance policy issued after 1st April, 2003 in respect of which the premium payable for any of the years during the term of the policy exceeds 20% of the actual capital sum assured will not be eligible for Sec 10(10D) benefit. This will not be applicable for any sum received on the death of a person.
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Disclaimer |
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1. The above are extracts from the Income Tax Act, 1961. Please note that tax laws are subject to change and hence before placing reliance on the above, the latest version of the above section should be checked. It should also be noted that the change in tax laws could have a retrospective effect.
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2. This information should not be construed as tax, legal or investment opinion from MetLife India. MetLife India would not be responsible in any manner for decisions made on the basis of the above information.
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3. Please consult your tax advisor for specific suitability of insurance products applicable to your specific cases.
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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 up to 20% of the sum assured.
Limit on amount of deduction: Deduction will be restricted
to investments upto Rs 1,00,000 in savings specified under Section 80C (including life insurance premiums). If any investments have been made under Section 80CCC and 80CCD, then the qualifying amount under Section 80C will stand reduced to that extent.
Premiums paid for Pension plans - Section 80CCC
Permitted Deduction: Section 80CCC allows for deduction of premiums paid under a pension plan. As per this section, premiums paid upto Rs 10,000 (till FY 2005-06) & Rs. 1,00,000 (from FY 2006-07) by an individual is allowed as deduction from his total income.
Disallowance: This benefit will be reversed if the policy lapses / is cancelled.
Limit: It may be noted that from FY 2005-06, the limit of deduction under Section 80CCC will be part of the overall limit prescribed under Section 80CCE.
Receipt under Policy: Amounts received on surrender (whole/part) of annuity plan and amounts received as pension is taxed as income.
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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).
- Any sum received under a Keyman Insurance Policy.
- 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.
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Tax Rates for Individuals |
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The rates of income-tax for FY 2008-09
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Total Income (Rs.) |
Rate of Tax |
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Senior Citizen |
Women below 65 years |
Others |
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Upto Rs 150,000 |
Nil |
Nil |
Nil |
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Above Rs 150,000 to 180,000 |
Nil |
Nil |
10% |
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Above Rs 180,000 to 225,000 |
Nil |
10% |
10% |
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Above Rs 225,000 to Rs 300,000 |
10% |
10% |
10% |
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Above Rs 300,000 to Rs 500,000 |
20% |
20% |
20% |
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Above Rs 500,000 |
30% |
30% |
30% |
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Surcharge on Income Tax
In cases where the Total Income exceeds Rs 10,00,000, there would be a surcharge @ 10%.Marginal relief is available to assessees whose income just exceeds Rs. 10,00,000.
Education Cess on Income Tax
Edcuation Cess @2% will be payable on the amount of income tax (including surcharge).
Secondary & Higher Education Cess on Income Tax
Additional Education Cess @1% will be payable on the amount of income tax
(including surcharge).
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