Tax deduction on Life Insurance
Here are the main conditions for claiming tax deduction for life insurance premium under Section 80C of the Income Tax Act:
Only an individual or a Hindi Undivided Family can claim a deduction. They can be residents or non-residents. The individual could be either Indian or a foreign origin.
The maximum amount of deduction possible under this section for all insurance/investment avenues (including life insurance premium) is Rs. 1,50,000 for a financial year.
An individual can take life insurance policy on one’s own life, or on the life of one’s spouse or children.
The policy can be either pure term insurance, a traditional plan or a ULIP plan.
For a policy issued on or before March 31, 2012, deduction is restricted to 20% of the capital sum assured. In case of policies issued on or after April 1, 2012, the same is restricted to 10%. In case of a policy taken on or after April 1, 2013 in the name of any person suffering from disability referred to in section 80U or suffering from an ailment as given in section 80DDB, the deductions are limited to 15% of the capital sum assured.
In case of traditional and ULIP life insurance plans, the tax deductions claimed will get reversed if the policyholder surrenders the insurance policy before 2 years and 5 years respectively.
Tax deduction on Health Insurance
Only an individual or Hindu Undivided Family can claim deductions under Section 80D. The person can be a resident or even a non-resident. So, NRI's or even foreign citizens qualify to claim deduction for health insurance.
Only mediclaim and critical illness policies qualify for deduction under Section 80D of the Income Tax Act. Premium for personal accident policies do not qualify.
Payments made as premium for health insurance policy, Central Government Health Scheme (CGHS) or as cost of preventive health check-up qualify for deductions.
- The payments can be made for one self, or for one’s spouse, dependent children (irrespective of the number) or parents (dependent or not).
- Health insurance premium has to be paid in a mode other than cash to claim the deduction. However, payments made on account of preventive health check-up can be made in cash.
- Deduction under Section 80D is available on “payment basis” i.e. in the year you’ve made the payment, irrespective of which year it relates to.
- Premium of such a policy which can be attributed towards the critical illness rider, in case the life insurance policy qualifies for a deduction under section 80D. Note that premium for accident rider does not qualify under the section.
Deductions Available under section 80D
Section 80C & 80D: The Fine Line
On the basis of the facts presented so far, it is clear that there are finer lines of difference between the provisions provided under the sections 80C and 80D. If you haven’t been able to notice them, here’s a short summary:
Also read: Tax Deduction on Health Insurance
A Little Note
It is more than important to understand the available provisions when claiming tax and filing for tax returns. By claiming higher deductions than what is allowed, even out of complete ignorance or mistake, may cost you additional tax, interest and penalties. Also, since these tax provisions are dynamic, one must make an effort to stay updated about the amendments introduced in the Income tax act year on year.