Tax Benefits

Payment of premium on life insurance policy not only gives insurance cover to a taxpayer but also offers certain tax benefits.

These contributions are eligible for deduction from gross total income, which leads to a reduction in the tax liability.

Give below the FAQ which generally arise to the taxpayer while claiming deduction of Insurance premium paid

Who can avail a deduction under section (u/s) 80C of the Income-tax Act, 1961 (Act) with respect to premiums paid on life insurance policies?

Any individual or Hindu Undivided Family (HUF) can avail a deduction u/s 80C of the Act.

Insurance premium paid on life of my family member or relative is allowed as deduction u/s 80C of the Act?

You can claim the deduction of the premium paid1 for a life insurance policy, if policy is taken on your own life, life of spouse or life of any of your child. Your child may be minor, major, married, unmarried, dependent or independent. Life Insurance premium paid for your parents or any other close relative is not deductible u/s 80C of the Act.

Can HUF can pay Life Insurance premium on my behalf

In case of Hindu undivided family (HUF) taxpayer, premium paid on the life of any member of the HUF is allowed as deduction u/s 80C of the Act.

Is it necessary to pay life insurance premium by cheque only for claiming deduction?

There is no restriction on mode of payment. Life insurance premium can be paid in cash, cheque or by any other mode like, credit card / debit card, net banking, etc.

Are all types of insurance plans qualified for deduction u/s 80C of the Act?

Yes. Taxpayer can take any insurance plan according to his requirement. Term insurance, money back policies, annuity policies, unit-link investment plan (ULIP), whole life plan, group life insurance, etc are qualify for the deduction u/s 80C of the Act

Can I take deduction of premium paid towards pension plans?

Premium paid towards a pension plan is eligible for a deduction u/s 80CCC.Maximum benefit of Rs 1,50,000 u/s 80CCC can be claimed

What is the limit on amount of deduction that can be claimed?

The aggregate deduction, u/s 80C, 80CCC and 80CCD cannot exceed Rs 1,50,000

Is repayment of loan taken on life insurance policy is deductible u/s 80C of the Act?

Deduction is available only for life insurance premium payment and not on repayment of loan.

Whether late payment fees charged by Life insurance companies are deductible U/s 80C of the Act

No. Late payment interest /fees charged by insurance company, due to late payment of insurance premium shall not deductible u/s 80C of the Act.

What are the tax implications if I terminate the Insurance Policy?

  • If Life insurance policy is terminated within a period of two years from the commencement of policy, deduction already claimed in earlier years will be considered income in the year in which policy is terminated.
  • In case of ULIP plan, if ULIP is terminated within a period of two years from the commencement of the policy, then deduction already claimed in earlier year will be considered as income in the year in which policy is terminated.

In short we can say that minimum holding period of the life insurance policy as well as for Unit–linked insurance plan is 2 years.

Further, no tax deduction is available in respect of any premium paid on that policy in the year in which the policy is terminated.

I have taken rider along with base policy, insurance company is charging separate premium towards rider. Will I get deduction of the premium paid towards rider?

Yes. Premium paid towards riders taken along with base policy is allowed as deduction u/s 80C of the Act.

Insurance company has charged me some fees for changing my nominee. Will I get deduction of such fees paid?

No

I have contributed additional amounts over and above the regular premium payable under the unit linked life insurance plan. Will I get deduction of such top up premium paid?

Yes, however the deduction will be subject to restrictions.

I have transferred/ assigned my policy to my parents, will I still get deduction of premiums paid?

Transfer or assignment is a method of transferring of all benefits and rights under a life insurance policy to another person; however the Life insured remains the same. Hence, in the given case deduction can be claimed for the premiums paid towards policy which is assigned in the name of your parents.

Such deduction is not available in case where Keyman insurance policy.

Can I claim deduction in current financial year, if premium due in current financial year but paid in next financial year?

No. The deduction u/s 80C of the Act is available on payment basis only. If payment is due as on 31 st  March 2016 and premium is paid as on 1 st  April 2017, then you can claim the deduction u/s 80C in financial year 2017-18 and not in financial year 2016-17.

I have paid premium multiple premiums at one go, will I get deduction for all premiums?

Yes, but subject to the cumulative limit of Rs 1,50,000

Can I claim deduction of premium paid by taking loan?

Yes, Life Insurance premium can be paid out of money taken on Loan, deduction of such premium paid can be taken.

I have taken policy to cover my loan, where the premiums are paid by the bank by increasing my loan amount. Who will get the deduction?

In this case the premium is paid by the bank in your behalf, you will get the deduction u/s 80C of the Act.

Whether there is any restriction on amount of deduction to be claimed?

Yes, Deduction is restricted to 20% of actual capital sum assured in respect of policies issued on or before 31-3-2012 and 10% in case of policies issued on or after 1-4-2012.

In case of policy taken on or after 1-4-2013 in the name of any person suffering from disability or severe disability referred to in section 80U or suffering from disease or ailment as given in section 80DDB, the limit will be 15% of capital sum assured.

I have taken child insurance policy for the benefit of my child, where I am the life assured but premiums are paid by my father. Who will get benefit?

In such case the premiums are paid by your father on the life assured of his son/daughter (you), your father will get the deduction benefit.

Are the proceeds received on maturity of a life insurance policy subject to tax?

Section 10(10D) of the Act provides an exemption for the proceeds received on maturity subject to satisfaction of certain conditions mentioned therein.

I am business man and have taken "Keyman Insurance Policy” from the Life Insurance Company; will I get any tax benefit?

Yes, the amount of premium paid towards keyman Insurance Policy is allowed as deduction under section 37(1) of Income Tax Act, 1961. However it should have been incurred for have been incurred for the purpose of business or profession.


1The deduction from your income u/s 80C of the Act, for premiums payable on life insurance policies issued on or after 1 April 2012 shall be available only if the premium paid is less than or equal to 10% of the Actual Capital Sum Assured.

Disclaimer:

This information should not be construed as expert tax, legal opinion from TATA AIA Life Insurance Company Limited. TATA AIA Life Insurance Company Limited would not be responsible in any manner for decisions made on the basis of above information. We request you to consult your tax advisor before taking any decision.