Uncertainty of life make a person to think about the survival of their loved ones after him. Purchasing of life insurance although cannot compensate a life but give them the security of securing their future without the person’s presence. Government also encourage an individual to have an insurance policy by providing deductions in their taxable income.
Assesse can claim deduction under Section 80C of the Income Tax Act, 1961, regarding the premium amount paid towards the life insurance policy during the year if complied with the conditions mentioned in the said section.
Deduction under Section 80C:
- Applicable for Individual or HUF;
- Can take life insurance policy for itself, spouse, dependent or independent child – minor or major – married or unmarried;
- Can take policy from any insurer approved by the Insurance Regulatory and Development Authority of India (IRDAI);
- Premium should not exceed 10% of the sum assured where policy issued after 1st April 2012. If policy issued prior, premium should not exceed 20%;
- For individual with disability referred under section 80U or disease referred under section 80DDB, premium should not exceed 15% of the sum assured when policy issued after 1st April 2013;
“Sum assured” simply means the minimum amount assured under the policy to the survivor. This amount does not include premium which has been agreed to be returned or any payment of bonus on the policy.
Where the assesse has complied with the conditions regarding premium specified under section 80C for Life Insurance Policy, any amount received on the maturity of such insurance policy or amount received as bonus shall be fully exempt from Income Tax under Section 10(10D). However, if any excess premium is paid than the specified limited prescribed in section 80C, any money received from a life insurance policyreduced by the premium paid shall be taxable, i.e., gross receipt received shall be taxable in the hands of assesse.
Moreover, if the life insurance policy is not covered under the exemption of section 10(10D) and amount received on maturity is more than Rs. 1lakh, TDS u/s 194DA shall be required to be deducted @5% by the insurer before making the payment. However, if the amount received is less than Rs. 1lakh, whole amount shall be taxable in the hand of individual / HUF.
As per the Finance Bill, 2023, any life insurance policy/policies other than ULIP issued on or after 1st April 2023 who’s aggregate premium paid in the year is above Rs. 5lakhs, sum received on maturity of such policy shall be taxable in the hands of assesse except when received on the death of the person. Also, deduction regarding the premium paid shall not be allowed to assesse under section 80C. The deduction under section 80C for Life Insurance Policy cannot be claimed by assesse opting and filing return under new regime i.e., section 115BAC of the Income Tax Act, 1961.
