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Is Life Insurance Premium Tax Deductible: A Comprehensive Guide

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Life insurance is a powerful financial tool that acts as a safety net in times of difficulty. It offers a protective veil over the well-being of your loved ones. In simple words, life insurance is a contract in which the policyholder pays regular amounts of money, known as "premiums," to an insurance company. In return, the insurance company provides a lump-sum payment, called the "death benefit," to designated beneficiaries upon the policyholder's death.

Click here to use life insurance calculator: How much life insurance do I need?

Table of Content

While life insurance serves as a protective shield, understanding the tax implications on the premiums could be confusing. The good news is that the policy offers life insurance tax benefits. However, the government has established specific conditions and exceptions that should be considered when selecting a policy. These provisions determine whether and to what extent your life insurance premiums and other benefits will be eligible for tax exemptions.

In this blog, we will break down the complexities surrounding the taxability of life insurance premiums, helping you make an informed decision.

Tax Deduction on Premiums of Life Insurance Policies

The premiums paid towards a life insurance policy are tax deductible. This means that the money you pay as premiums for this policy can be subtracted from your income when calculating your income tax liability. It allows you to harness the dual benefits of financial protection and tax efficiency.

Also Read: ULIP Tax Benefits

Tax Benefits Offered Under Life Insurance

In India, the Income Tax Act of 1961 highlights specific sections that enable policyholders to avail tax benefits associated with their life insurance policies. To save the most with these benefits, let us take a look at the various tax exemptions offered.

Section 80C Deductions

Under this section, you can claim a deduction on the premiums, whether paid for yourself, your spouse, or your children. The maximum deduction allowed under this is up to ₹1.5 lakhs.

Section 10(10D) Exemptions

Maturity proceeds refer to the amount that is paid to an investor on the completion of the policy tenure. Under Section 10(10D), the maturity proceeds that you receive from buying a life insurance policy are exempted. This exemption ensures that the sum assured you or your nominees receive remains tax-free.

What are the Tax Benefits on Life Insurance Riders?

Riders refer to the additional coverage or the feature that you can add to your policy for additional cost. It covers life events that are not included in standard policy. Thus, adding a rider to your policy will help you to maximise your life insurance benefits.

Adding a rider to your life insurance policy is completely optional and can be added to the base plan for an extra premium. Under Section 80C of the Income Tax Act 1961, you can easily claim deductions of up to ₹1.5 lakhs per annum for these premiums paid.

The death benefit received by the beneficiary of a life insurance policy, including riders, is generally tax-free under Section 10(10D) of the Income Tax Act. This means the entire sum assured, including the rider benefits, is exempt from income tax. Moreover, numerous life insurance policies offer critical illness riders tax-free lump-sum benefits upon diagnosing a critical illness.

Choose Wisely Now!

Thus, the Income Tax Act helps in fostering the nation's growth along with ensuring the welfare of its citizens. Adhering to tax obligations helps to leverage the exemptions and deductions for saving extra amounts. Provisions like Section 80C, when used judiciously, not only enable you to maximise benefits effortlessly but also provide a strategic path to enhance wealth and savings significantly.

With Canara HSBC Life Insurance iSelect Smart360 Term Plan, you can enjoy the advantage of customisation that helps maintain the budget prudently. You can also choose the frequency of payments along with the payment medium and avail flexibility benefits.

 

Life Insurance - Top Selling Plans

We bring you a collection of popular Canara HSBC life insurance plans. Forget the dusty brochures and endless offline visits! Dive into the features of our top-selling online insurance plans and buy the one that meets your goals and requirements. You and your wallet will be thankful in the future as we brighten up your financial future with these plans.

Family Shield: Enhanced Protection

iSelect Smart360 Term Plan
  • 3 Plan options
  • Life cover till 99 years
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  • Block your premium at inception

Start Young, Pay Less, Stay Secured

Young Term Plan
  • Life cover till 99 years
  • Coverage for spouse
  • Block your premium rate
  • Covers 40 critical illness

Fixed Returns, Zero Risks & Worries

iSelect Guaranteed Future Plus
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FAQs

Under Section 80C, the maximum tax exemption for life insurance is ₹1.5 lakhs. You can deduct premiums up to 20% of the sum assured from your taxable income. However, if you pay more than 20% of the sum assured as premiums in a single financial year, that extra amount is not eligible for a deduction.

Deductions provided by Section 80C are exclusively for individuals and Hindu Undivided Family (HUF) taxpayers.

The benefits received by policyholders are not just limited to the premium paid during the policy tenure; instead, they extend beyond that. According to Section 10(10D), the maturity benefits of a life insurance policy are tax-free, provided that the premium paid towards the policy for every year does not exceed 10% of the basic sum assured.

The amount of income tax saved under the life insurance policy varies based on numerous factors, like the policy type and premiums paid towards the policy. As per Section 80 C of the Income Tax Act 1961, the policyholder can avail a tax deduction of up to ₹1.5 lakhs in a year towards the premium they paid.

A life insurance policy offers numerous benefits to the policyholder, but considering the benefits should be one of many reasons to purchase the policy. There are numerous other factors that you must evaluate, including:

  • Tenure of the policy

  • Premium payable

  • Inclusions and exclusions of the policy

  • Implications of premium default