Before Buying Insurance Policy to Save Income Tax

Premiums paid towards these insurance plans buy you protection. What’s more – you can also get tax benefits on the maturity amount/returns from insurance plans. For employees Jan-Feb is season of submitting income tax proof.  Many people buy insurance policy, in a hurry, to save tax and submit the proof to employer. Buying an insurance policy is a long time commitment, similar to marriage. So It is advisable to understand all aspects of claiming tax benefit in buying insurance policy.  Let us examine these aspects in detail as per current income tax laws.

What is tax benefit available for insurance policy?

Any amount paid to an insurer to buy or to keep a life insurance policy in force can be claimed as a deduction from gross total income by the policy holder. So premium paid for a life insurance policy can be deducted from gross total income before arriving at taxable income subject to certain conditions.

Life insurance plans are eligible for Best Tax Saving Plan deduction under Sec. 80C. Deduction benefit up to Rs 1.5 lakh under Section 80C.  Section 80C relates to deduction allowed under investments in instruments like PPF, insurance and pension policies.

Pension plans are eligible for a tax deduction under Sec. 80CCC. Deduction benefit up to Rs 1.5 lakh under Section 80CCC.

Health insurance plans/riders are eligible for tax deduction under Sec. 80D. You can get a tax deduction of maximum Rs 25,000 on the health insurance premium for self and family. If you are a senior citizen, you can claim tax deduction on the premium of up to Rs 30,000.

Combined Limit of deduction under Sec 80C & 80CCC & 80 CCD is Rs 1, 50,000.

The proceeds or withdrawals of our life insurance policies are exempt under Sec 10(10D), subject to norms prescribed in that section.

Who can get the tax benefit on premium paid for a life insurance policy?

On whose name should the life insurance policy be to claim the tax benefit?

An individual can only claim tax benefit under Section 80C of the Income tax Act, 1961, on life insurance policy(s) bought in the name of self, spouse or children. You can buy a life insurance policy for any number of your children irrespective of whether they are minor, major, married, unmarried or adopted. A policy taken in the name of any other person won’t be eligible for any tax benefits. So life insurance premium paid by you for your parents (father / mother / both) Brother, Sisters or your in-laws is not eligible for deduction under section 80C.

Source: http://tax-saving-plans.tumblr.com/post/144290926275/before-buying-insurance-policy-to-save-income-tax