Life insurance offers protection and can also help you save tax. Two sections of the Income Tax Act matter most: Section 80C for premiums paid and Section 10(10D) for money received.
Section 80C: Deduction on Premium
Under the old tax regime, premiums paid for life insurance can be claimed as a deduction, within the overall limit of ₹1.5 lakh a year under Section 80C. This limit is shared with other investments like PPF, ELSS and EPF.
Conditions for Premium Deduction
For policies issued after 1 April 2012, the premium should not exceed 10% of the sum assured to qualify. For older policies, the limit is 20%. Special rules apply for persons with disability.
Section 10(10D): Tax-Free Maturity and Death Benefits
The amount received on death is generally tax-free. The maturity amount can also be tax-exempt if the premium limits are met. However, for certain policies with high premium (for example, ULIPs and non-term policies above specific annual premium thresholds), the gains may be taxable.
Term Plans and Tax
Death benefit from a term plan is normally exempt under Section 10(10D). Term insurance is thus an efficient way to get high cover and tax benefits together.
New Tax Regime
Most deductions, including 80C, are not available under the new tax regime. Compare both regimes before you decide how much to invest for tax saving.
Important Reminders
- Tax rules are updated in the Union Budget, so check the latest rules.
- Do not buy insurance only to save tax. Choose the plan that fits your need.
- Keep premium receipts for filing your return.
Frequently Asked Questions
Can I claim 80C for my spouse’s policy?
You can claim for premium paid for your own life, spouse or children.
Is ULIP maturity always tax-free?
No. It depends on the premium amount and the applicable rules at the time of purchase.
Is death claim taxable for the nominee?
Generally no, under Section 10(10D), subject to conditions.
