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Life insurance and tax benefits
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Life insurance is one of the most popular savings/
investment vehicles in India . Ironically it is probably the least understood
too. 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
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Benefits
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The benefits under income tax are of two types
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1. Deductions |
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2. Exemptions |
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| 1. |
Deductions from gross income |
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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 of tax benefit.
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80CCC |
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Sec 80 CCE
Under section 80CCE, the overall limit for deductions u/s. 80C, u/s. 80CCC and u/s. 80CCD is Rs. 1 lakh.
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80D
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| Benefits of investing in life insurance plans of BSLI |
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Premiums paid for all Life Insurance products of
BSLI eligible for deduction, namely Flexi Save Plus Endowment Plan , Birla Sun
Life Term Plan , Premium Back Term Plan, Medicare Plan, Flexi Cash Flow Money
Back Plan, Flexi Life Line Whole Life Plan , Classic Life, Flexi Secure Life
Retirement Plan, My Child Plan, Women First Plan.
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| Other investment avenues |
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Other products which are eligible for investments
are - PF, PPF , ULIP , NSC , Superannuation Plan etc
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| 2. |
Exemption from the proceeds
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Commuted pension: 10(10A)(iii)
One-third of the Value at vesting date would be tax free |
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Life Insurance Proceeds
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10(10D) |
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Any sum received from insurance policy as maturity
proceeds, death benefits.
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Proceeds of key man insurance are taxable
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Single premium policies will be taxed as income in
the year it is received assuming that premium exceeds 20% of the sum assured.
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An Insurance policy issued after 1st April 2003 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.
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Illustration (For resident individual) |
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| Net
amount taxable
(A) |
4,30,000 |
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| Income under House Property |
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Interest on Housing
Loan
(B)
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(1,50,000) |
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| Deduction
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Critical illness premium - 80
D
(C)
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10,000 |
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Life Insurance premium -80 C
*
(D)
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90,000 |
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Pension Investment - 80
CCC
(E)
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10,000 |
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| Taxable Income
(A-B-C-D-E)
(F) |
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1,70,000 |
| Tax
Liability on
(F)
(G) |
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9,000 |
| Education Cess (K) |
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180 |
| Total
tax (G+K) |
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9,180 |
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Note:
1) Assuming that there are no other investment such as PF, PPF etc
*
2) Life Insurance Policy of face value Rs.5, 00,000 *
3) For Women the tax liability will be Rs. 5,610 and for senior Citizen the
liability will be (NIL)
4) Financial Year 2005-06 (Assessment Year 2006-07)
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Forms -Saral |
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Form 2 E
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(http://www.taxmann.com/DITTaxmann/IncomeTaxRules/pdf/itr62Form2E.pdf)
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Form 2 D
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(http://www.taxmann.com/DITTaxmann/IncomeTaxRules/pdf/itr62Form2D.pdf) |
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Disclaimer
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| 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 a retrospective effect also.
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This information should 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 the above information.
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Please consult your tax advisor for specific suitability of insurance products
applicable to case specific to the user of this information.
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