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Life insurance is one of the most popular savings/ investment vehicles in India. An insurance policy offers much more than just tax planning and investment returns. It offers you the ability to plan for unforeseen events that could affect your family's financial problem adversely

Under the Income Tax Act, 1961, the following tax benefits are available for life insurance.

The benefits under income tax are of two types

1.   Deductions
2.   Exemptions
   
 
1. Deductions from gross income
Sec 80C
 
Deduction is available amounting to Rs. 1,00,000

The benefit for life insurance premium u/s 80C is restricted to 20% of the actual capital sum assured. Surrender of Plan before premium has been paid for two years will result in reversal tax benefit.

80CCC
 
Deduction in respect of contribution to pension funds
Maximum Rs. 1,00,000
Flexi Secure Life Retirement Plan and Freedom 58 from Birla Sun Life Insurance provides all the benefits. You can also withdraw money as and when needed.
Surrender/Withdrawal will be subjected to tax.
Pension received will be subject to tax.
Sec 80 CCE
 
Under Section 80CCE, the overall limit for deduction u/s 80C, u/s 80CCC and u/s 80CCD is Rs. 1,00,000.

80D

 
Deduction in respect of medical insurance premium
Individual or HUF whether resident or non resident
Premium can be paid by any mode other than cash
Premium paid out of income chargeable to tax.
For normal individuals the maximum deduction is Rs.15, 000/- and for senior citizens age 65 years and above the deduction is Rs. 20, 000/-.
 
Additional deduction allowed for individuals for taking health insurance for parents as under:
Where parents are aged below 65 years Rs.15, 000/-
Where parents are aged 65 years & above Rs.20, 000/-
     
 
 
2. Exemption from the proceeds
Commuted pension: 10(10A)(iii)
  One-third of the Value at vesting date would be tax-free
10(10D)
 
Any sum received from Life insurance policy as maturity proceeds, death benefits.
Proceeds of key man insurance is taxable
Single premium policies will be taxed as income in the year it is received assuming the premium exceeds 20% of the sum assured.
An Insurance policy in respect of which the premium payable for any of the years during the term of the policy exceeds 20 % of the actual capital sum assured will not be eligible for Sec 10(10D) benefit. This will not be applicable for any sum received on the death of a person.
Illustration (For resident individual/Woman/Sr. Citizen)
 
Particulars Normal Woman Sr. Citizen
Gross Total Income 600,000 600,000 600,000
Deduction u/s. 80C/80CCC 100,000 100,000 100,000
Deduction u/s. 80D 15,000 15,000 20,000
Total Taxable Income 485,000 485,000 480,000
Tax on Income      
Upto 1.50/1.80/2.25 lakh - - -
1.50 lakh - 3.00 lakh 15,000 - -
1.80 lakh - 3.00 lakh - 12,000 -
3.00 lakh - 5.00 lakh 37,000 37,000  
2.25 lakh – 3.00 lakh - - 7,500
3.00 lakh to 5.00 lakh     36,000
  52,000 49,000 43,500
Add: Surcharge - - -
Add: Education cess @ 3% 1,560 1,470 1,305
Total Tax Payable 53,560 50,470 44,805
 

Note: Income tax rates are applicable for F.Y 2008-09 only.

     
 
 
  Disclaimer
 
1.
The above are extracts from the Income tax Act, 1961. Please note that tax laws are subject to change and hence before placing reliance on the above, the latest version of the above section should be checked up. It should also be noted that the change in tax laws could have retrospective effect also.
2.
This information should be not be construed as tax, legal or investment opinion from BSLI. BSLI would not be responsible in any manner for decisions made on the basis of above information.
3.
Please consult your tax advisor for specific suitability of taxation on insurance products.
     
 
   
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Birla Sun Life Insurance Company Limited, 6th Floor, Vaman Centre, Makhwana Road, Off Andheri-Kurla Road,
Andheri (East), Mumbai 400059