Although it is advised not to use insurance solely for the purpose of tax saving, under the existing regime there are various tax sops that allow you to save tax via life and health insurance.
There are various sections of the Income-tax Act, 1961 under which you can claim tax benefits.
Tax advantages of life insurance
A deduction of the amount paid towards any annuity plan of a life insurance company for the purpose of receiving pension is allowed under section 80CCC of the Income Tax Act.
The tax deduction limit of Rs 1.5 lakh under section 80CCC is inclusive of sections 80C and 80CCD of the Income Tax Act. This means that the total deduction that can be claimed under these three sections is Rs 1.5 lakh.
Dhirendra Mahyavanshi, Co-founder, Turtlemint, a Mumbai based InsurTech firm, said that a pension plan usually has two parts - the accumulation phase and the payout or withdrawal phase. "The way a pension policy works is that you pay premiums till the maturity date following which you are entitled to receive 60 percent of the total amount as a lump sum pay out (as per the new regulations) while the balance is paid out as regular pension depending on the specifics of your pension plan."
Mahyavanshi added, "Tax benefits can be availed during the accumulation phase - the premium paid each year can be claimed as deduction under section 80CCC up to Rs 1.5 lakh. In the withdrawal phase, while one-third of the lump sum pay-out is tax-free, the remaining amount which is either paid in a lump sum or as a regular pension is defined as income for that year and is thus taxable at the hands of the receiver."
Section 10 (10D)
The amount of sum assured, and bonus received on maturity or surrender of a life insurance policy or on the death of the life assured are completely tax-free in the hands of the receiver. This exemption is allowed under section 10 (10D) of the Income Tax Act.
Tax advantages of health insurance
In the case of a health insurance policy, you can avail tax deductions under section 80D of the Income Tax Act.
An individual can claim a deduction of up to Rs 25,000 for premiums paid for health insurance for self, spouse, and dependent children. An additional deduction of Rs 25,000 is available on the premium paid for the health insurance of parents aged up to 60 years. If the parents are above 60 years of age, then the deduction available is Rs 50,000 for premium paid for their insurance.
The below table summarises the deductions available for health insurance policies
|Scenario||Deduction under Section 80 D|
|Individual and family||Rs 25,000|
|Individual and parents below 60 years||Rs 50,000|
|Individual and family below 60 years but parents above 60 years||Rs 75,000|
|Both individual, family and parents above 60 years||Rs 1,00,000|
If both the taxpayer and the parent for whom the medical or health insurance policy is taken are above the age of 60 years, then the maximum deduction that can be availed under this section Rs 1 lakh.
Read More News on
1 Comment on this Story
ALAKA MOHAPATRA352 days ago
It is not at all desirable to go for insurance for the sole purpose of tax saving. If one is already having insurance the premium paid ,exemption may be claimed. If insurance is held for the purpose of tax benefit only it will be better to surrender the policy and invest the amount elsewhere for greater benefit.