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Life insurance plans provide financial security against the risk of premature demise during the policy tenure. They help you leave behind a secured financial corpus for your family when you are not around. Moreover, with the different types of life insurance policies available in the market, you can earmark different financial goals that you have.

Besides the financial security and savings that life insurance plans offer, there are also several tax advantages. Life insurance plans can give you the EEE (Exempt, Exempt, Exempt) tax benefit so that you can save on taxes while planning for future contingencies. The EEE benefit gives you maximum tax savings subject to provisions stated in the Income Tax Act, 1961 (the Act). It gives tax relief on the premium paid, returns earned and policy benefits received.

How to save income tax with life insurance plans?

Life insurance plans allow tax-saving benefits on -

  • The premium that you pay
  • The death benefit received
  • The maturity benefit received
  • Any form of bonus or guaranteed addition received from the plan
  • Partial withdrawals made under ULIPs
  • Surrender value received from a policy
  • Fund switching in a ULIP when you transfer your investment from one fund to another

These tax benefits are available under different sections of the Income Tax Act, 1961 and are available as per the conditions mentioned therein in the Act.

Tax benefits offered under the Income Tax Act, 1961

The Income Tax Act, 1961 offers tax benefits on life insurance policies in two ways –

Deductions

Exemptions

Difference between Deduction And Exemption

 

The literal meaning of deduction is subtraction. As such, deductions are applicable to your taxable income. They apply to the premiums that you pay towards a life insurance plan.

Exemptions, on the other hand, are applicable to any form of benefit that you receive from the life insurance policy which is tax exempt in the hands of recipient. The exemption applies on the –

Maturity benefit

Bonus and other additions

Surrender value

Partial withdrawals

Let’s have a look at the various deductions and exemptions that you can apply to a life insurance plan.

Deductions

The following deductions are available under Chapter VI A of the Act, for life insurance plans –

This section allows deduction on life insurance premiums that you pay. The section allows a deduction of up to an amount of Rs.1.5 lakhs annually. Premiums paid for any life insurance policy, except a pension plan, qualify for a deduction under this section.

The following conditions need to meet for availing deductions under Section 80C-

  • An individual or a Hindu Undivided Family (HUF) can claim the deduction.
  • The premium can be paid for self, spouse and dependent children. Premium paid for parents would not qualify for a deduction.
  • In case of HUFs, though, deductions are available for the premium paid for any member of the family.
  • In case the policy has been issued on or after 1st April 2012, the premium should not be greater than 10% of the death sum assured. However, in case the plan is issued before this date, the premium should be within 20% of the death sum assured.
  • The policy should be active for a minimum of two years. If the life insurance policy is surrendered within two years, the deduction would be reversed. The deduction you claimed would be added back to your income and taxed in the year when you surrender the policy. Above duration of 2 years is applicable for non-linked policies. For ULIP policies this duration is of 5 years.

If the life insured has a disability as specified under the Section 80U of the Act or suffers from a disease specified under Section 80DDB, and the plan is issued on or after 1st April 2013, premiums up to 15% of the death sum assured are allowed as a deduction.

  • The diseases specified under Section 80DDB are as follows –
    • Neurological diseases whose severity is 40% and above. The diseases are ataxia, dementia, chorea, Dystonia Musculorum Deformans, aphasia, motor neuron disease, hemiballismus and Parkinson’s Disease.
    • Chronic renal failure
    • Malignant cancer
    • Full-blown AIDS,
    • Haemophilia or Thalassemia
  • The deduction under Section 80DDB is available for individuals and HUFs for medical expenses incurred for treating the aforementioned diseases or ailments.

Let’s understand the deduction with some examples –

image

Example 1

A man buys a life insurance policy for his wife on 1st January 2020. The death sum assured is Rs.10 lakhs, and the premium is Rs.50,000, payable for 10 years.

Tax benefit –

Rs.50,000 would be allowed as a deduction from the man’s taxable income because the premium of Rs.50,000 is within 10% of the death sum assured, which is Rs.1 lakh.

image

Example 2

A man buys a life insurance policy for his father on 1st February 2019. The death sum assured is Rs.10 lakhs, and the premium is Rs.1 lakh.

Tax benefit –

10% of the death sum assured is Rs.1 lakh. The premium is also Rs.1 lakh and so, can be qualified under the 10% rule. However, since the policy was bought for the father, the deduction under Section 80C of the Act would not apply.

image

Example 3

A man buys a policy for himself on 1st March 2021. He pays a single premium of Rs.2 lakhs for a death sum assured of Rs.10 lakhs.

Tax benefit –

The single premium is greater than 10% of the death sum assured. Thus, the man would not be able to claim the deduction on the entire amount of the premium. The deduction would be available only up to 10% of the death sum assured.

So, he can claim a deduction of Rs.1 lakh of the premium (10% of the death sum assured of Rs.10 lakhs is Rs.1 lakh) only.

image

Example 4

A man buys a life insurance policy on 1st January 2011. The premium is Rs.2 lakhs and the death sum assured is Rs.10 lakhs.

Tax benefit –

Since the policy was issued before 1st April 2012, a premium up to 20% of the death sum assured would qualify as a deduction. Since 20% of the death sum assured of Rs.10 lakhs is Rs.2 lakhs and the premium is also Rs.2 lakhs, the man is technically allowed to claim a deduction on the entire amount of the premium.

However, Section 80C allows a maximum deduction of Rs.1.5 lakh. So, the deduction would be available only on Rs.1.5 lakhs.

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Example 5

A man buys a life insurance policy for his son suffering from aphasia. He bought the policy on 1st April 2015 and paid a premium of Rs.1.5 lakhs. The death sum insured is Rs.10 lakhs.

Tax benefit –

The man buys the policy for his son, which is allowed under Section 80C of the Act. The son is also suffering from a disease specified under Section 80DDB. Since the policy was bought after 1st April 2013, a premium of up to 15% of the death sum assured can be claimed as a deduction.

In this case, the premium is 15% of the death sum assured (Rs.1.5 lakhs is 15% of Rs.10 lakhs). So, the policyholder can claim a deduction on the entire premium of Rs.1.5 lakhs.

This section is solely applicable for life insurance pension plans. If you buy a deferred annuity policy, i.e. a pension plan wherein annuity payments do not start immediately, you get a tax benefit on the premium amount.

Premium paid for such policies qualifies for a deduction under this section. The rules for claiming the deduction are the same as the rules for Section 80C. The maximum amount of deduction available is Rs.1.5 lakhs which includes the deduction available under Section 80C of the Act. 

For example, say you buy two life insurance plans. One is a Unit Linked Insurance Plan(ULIP) wherein you pay a premium of Rs.1 lakh, and another is a pension plan wherein you also pay a premium of Rs.1 lakh. In this case, the deduction would be as follows –

  • Rs.1 lakh for ULIP premium under Section 80C
  • Rs.1 lakh for pension plan premium under Section 80CCC

However, the maximum deduction allowed is Rs.1.5 lakhs. So, you could claim a deduction up to an amount of Rs.1.5 lakhs only. You can get a tax deduction of Rs.1 lakh under Section 80C and Rs.50,000 under Section 80CCC. Alternatively, you can get a tax deduction of Rs.50,000 under Section 80C and Rs.1 lakh under Section 80CCC.

This section does not allow any deduction. It simply states that the deduction available under Section 80C, 80CCC and 80CCD(1) of the Act cannot exceed Rs.1.5 lakhs. 

Deduction under Section 80D of the Act is allowed for premiums paid towards health insurance policies. So, the deduction is available in the following instances –

  • If you buy a health insurance policy from a life insurance company
  • If you choose a rider with your base policy that provides health insurance coverage. Common examples of the rider include critical illness rider, surgical rider, terminal illness rider, etc.

You can also pay the premium for your family and claim a deduction under this section. The limit of deduction is as follows –

  • For people less than 60 years of age, it is up to an amount of Rs.25,000 per financial year.
  • For people more than or equal to 60 years of age, the limit is up to an amount of Rs 50,000 per financial year.

Moreover, in case you are paying the health insurance premium for your dependent parents as well, you can get an additional amount of tax deduction under section 80D of the Act for the premium paid. Even for this deduction, the limit would be as follows:

  • If both of your parents happen to be less than 60 years of age, you get a tax deduction upto an amount of Rs 25,000 for premium payment for their health insurance policy.
  • However, if one or both of them are 60 years or more, then you get a tax deduction up to an amount of Rs 50,000 for premium payment for their health insurance policy.
  • Below is the summary of deductions available under Section 80D:

 

Particulars Family Amount (Rs) Parents Amount (Rs)

General deduction

25,000

25,000

Additional deduction, If anyone is Senior citizen

25,000

25,000

Maximum deduction available

50,000

50,000

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Example 1

Suppose you are 35 years of age, and you buy a life insurance policy and pay a premium of Rs.90,000. You also buy the critical illness rider for which you pay a premium of Rs.5000. The death sum insured is Rs.10 lakhs.

Tax benefit –

  • Premium of Rs.90,000 is within 10% of the death sum insured of Rs.10 lakhs. So, deduction under Section 80C would be allowed. A deduction of Rs.90,000 would be allowed under Section 80C.
  • The premium paid for the rider would be allowed under Section 80D. So, the premium of Rs.5000 would be deducted under Section 80D.
image

Example 2

You buy a health insurance policy for yourself, aged 35 years. You pay a premium of Rs.20,000. You also buy a health plan for your father, aged 62 years. The premium for the same is Rs.30,000.

Tax benefit –

  • For the premium that you paid for yourself, the deduction is available up to an amount of Rs.25,000. Thus, your premium of Rs.20,000 would be eligible for deduction under Section 80D.
  • For the premium paid for your father, the deduction is available up to an amount of Rs.50,000 since your father is a senior citizen aged 60 years and above. So, the premium of Rs.30,000 paid for your father would also qualify as a tax deduction under Section 80D..
  • The total deduction that you can apply under Section 80D is, thus, Rs.50,000

Deduction under Section 80DD is available if you have a dependent who is differently abled and is financially dependent on you completely. If you buy a life insurance policy for such a dependent, the premium that you pay for the same can be claimed as a tax deduction under this section.

The conditions to avail of the deduction are as follows –

  • The deduction is available to an individual or a Hindu Undivided Family (HUF)
  • You should not have claimed a deduction under the Section 80U of the Act
  • The dependent can be your spouse, children or siblings
  • The disability should be 40% and above
  • The disability should be defined under Section 2(i) of the Persons of Disabilities Act, 1995

A flat deduction of Rs.75,000 is allowed if the disability is between 40% and 80% and Rs.1.25 lakhs if the disability is more than 80%.

Exemptions

Exemptions are allowed under the Act for the benefits that you receive from a life insurance policy. The exemptions that you can get are as follows –

The conditions for tax exemption in respect of commuted pension in case of a non-Government employee are as follows –

  • If the employee receives gratuity, one-third of the full value of commuted pension is allowed as an exemption
  • If the employee does not receive any gratuity, half of the of full value of commuted pension is allowed as an exemption

Further exemption under Section 10(10A) is also available for the benefit received from a pension plan. On maturity of a deferred pension plan, if you commute a part of the total corpus, the commuted portion would be tax-free, subject to specified limits.

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Example

You have invested in a pension plan whose corpus, on maturity, is Rs.10 lakhs. On maturity, you commute 50% of the total corpus and withdraw Rs.5 lakhs.

Tax benefits –

Tax benefits under Section 10(10A) would be allowed on 33.33% of the total corpus. So, you would be able to claim an exemption on Rs.3.33 lakhs. The remaining corpus of Rs.1.67 lakhs would be subject to tax.

Benefits that you receive from a life insurance plan, including bonus is exempt from tax. Any amount that you receive would be eligible for exemption provided the following conditions are met –

  • In case the policy has been issued on or after 1st April 2012, the premium should not be greater than 10% of the death sum assured. However, in case the plan is issued before this date, the premium can be greater than 10% of the death sum assured but it should be within 20% of the death sum assured.
  • If the life insured has a disability as specified u/s 80U of the Act or suffers from a disease specified under the Section 80DDB the Act, and the plan is issued on or after 1st April 2013, premiums up to 15% of the death sum assured are allowed as a deduction.
  • In the case of ULIPs bought on or after 1st February 202110, the total maturity benefit will be tax-free if the aggregate annual premium is up to an amount of Rs.2.5 lakhs. If the premium exceeds Rs.2.5 lakhs, the gain from such policy will be taxable as capital gain. The tax would be applicable depending on the type of fund you invest in. It would be as follows –
  • In the case of equity investment, returns up to an amount of Rs.1 lakh would be tax-free. If the returns exceed Rs.1 lakh, the excess would be taxed at 10%. This is applicable if you hold your investment for at least one year.
  • If however, you redeem within the first year, the tax rate would be 15% on the total returns earned from the policy. This would be considered as a short-term capital gain
  • In the case of debt investment, returns would be taxed at 20% if you hold the investment for 3 years. For durations shorter than 3 years, the returns would be added to your taxable income and taxed as per applicable income tax slab rates. No indexation benefit would be allowed on such returns, and they would be called short-term capital gains.
  • A Securities Transaction Tax (STT) of 0.001% would also be applicable if you have invested in equity funds in your ULIP plan
  • If you pay a top-up premium, the aggregate premium calculated for the taxation of maturity proceeds would include the top-up premium paid. If the top-up premium and the basic premium exceed Rs.2.5 lakhs in any of the year of policy, the gain from such policy will be taxable as capital gain

However, the taxation of policies wherein the annual premium exceeds Rs.2.5 lakhs is applicable only on policies issued on or after 1st February 2021. If you have bought the policy before this date, the maturity benefit would be exempted even if the premium is more than Rs.2.5 lakhs provided policy is satisfying the criteria mentioned in Section 10(10D) of the Act.

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Example 1

You buy an endowment plan on 1st January 2000. The death sum assured was Rs.10 lakhs, and the premium was Rs.50,000. On maturity, you get Rs.15 lakhs which includes a bonus of Rs.5 lakhs.

Tax benefit –

Since the premium is up to 20% of the death sum assured on the plan issued before 1st April 2012, the maturity benefit would qualify as an exemption. You would receive an exemption on the policy benefit ie Rs. 5 lakhs (Rs. 15 lakhs – Rs. 10 lakhs)

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Example 2

You bought a ULIP on 1st July 2015. The death sum assured is Rs.20 lakhs and you pay a single premium of Rs.5 lakhs. The policy matures on 1st July 2022, and you receive a maturity benefit of Rs.8 lakhs. .

Tax benefit –

The policy was issued on or after 1st April 2012. The premium is 25% of the death sum assured. Since the premium is greater than 10% of the death sum assured, the gain from policy will be taxable. Thus, you would have to pay tax on Rs.3 lakhs.

image

Example 3

You buy a ULIP and pay a premium of Rs.2 lakhs, every year for 5 years. The death sum assured is Rs.20 lakhs and the maturity benefit that you receive from the plan is Rs.25 lakhs.

Tax benefit –

In this case, on maturity gain from policy will be fully tax-free since the annual premium is up to an amount of Rs.2.5 lakhs and policy is satisfying Section 10(10D) criteria

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Example 4

You buy a ULIP and pay a premium of Rs.2 lakhs. You buy another ULIP and pay a premium of Rs.1 lakh for that plan. The tenure of both plans is 5 years. On maturity, you receive Rs.12 lakhs from the first plan and Rs.7 lakhs from the second. You invest in equity funds under both plans.

Tax benefit –

Policy holder is having choice of selecting policy to be treated as exempt. Assuming that policyholder has selected Policy 1 which is satisfying Section 10(10D) criteria. In the first policy, the premium amount is Rs.2 lakhs which is below the limit of Rs.2.5 lakhs. So, the first policy would enjoy exemption under Section 10(10D) of the Act. The maturity benefit of Rs.12 lakhs received from the first policy would thus, be fully exempt.

In the second policy, however, the aggregate premium exceeds Rs.2.5 lakhs since you pay a premium of Rs.1 lakh for the new policy and you have an existing policy with a premium of Rs.2 lakhs. As such, in the case of the second policy, the total maturity benefit will be taxable. The tax liability would be calculated as follows –

  • Premium paid throughout the policy tenure = Rs.1 lakh * 5 years = Rs.5 lakhs
  • Amount received on maturity = Rs.7 lakhs
  • Long term capital gain = Rs.7 lakhs – Rs.5 lakhs = Rs.2 lakhs
  • Returns exempt from tax = Rs.1 lakh
  • Taxable long term capital gain = Rs.2 lakhs – Rs.1 lakh = Rs.1 lakh
  • Tax payable = 10% on the excess returns = 10% of Rs.1 lakh = Rs.10,000.
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Example 5

You buy a ULIP and pay a premium of Rs.2 lakhs annually. During the year, you pay a top-up premium of Rs.1 lakh under the plan. Thereafter, you pay a top-up premium of Rs.1 lakh every year. The term of the plan is 5 years after which you receive a maturity amount of Rs.20 lakhs. You had invested in the equity fund of the plan throughout the policy term.

Tax benefit –

  • Annual premium paid –Rs.2 lakhs
  • Amount of top-up premium paid – Rs.1 lakh
  • Total premium paid every year– Rs.3 lakhs
  • Total premium paid during the term – Rs.3 lakhs*5 = Rs.15 lakhs
  • Maturity benefit received – Rs.20 lakhs
  • Long term capital gain = Rs.5 lakhs
  • Type of fund selected – equity
  • Taxation – Returns up to an amount of Rs.1 lakh would be tax-free.
  • Excess return of Rs.4 lakhs would be taxed at 10%
  • Tax liability = 10% of Rs.4 lakhs = Rs.40,000
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Example 6

You buy a ULIP on 1st January 2021 and pay a premium of Rs.3 lakhs for a death sum assured of Rs.30 lakhs. You buy another ULIP on 1st March 2021 and pay a premium of Rs.2 lakhs for a sum assured of Rs.20 lakhs. In July 2021, you buy another policy for which you pay a premium of Rs.1 lakh. The sum assured in the policy is Rs.10 lakhs.

The taxability, in this case, would be as follows -

 

ULIP 1 bought on 1st January 2021

ULIP 2 bought on 1st March 2021

ULIP 3 bought on 1st July 2021

Premium

Rs.3 lakhs

Rs.2 lakhs

Rs.1 lakh

Sum assured

Rs.30 lakhs

Rs.20 lakhs

Rs.10 lakhs

Exemption under Section 10(10D)

Allowed. The maturity benefit would be fully exempted even though the annual premium is more than Rs.2.5 lakhs since the policy was issued before 1st February 2022

Allowed. The maturity benefit received from the policy would be fully exempted because the annual  premium is below Rs.2 lakhs

Not allowed. The aggregate annual premium of ULIP 2 and ULIP 3 crosses Rs.2.5 lakhs. As such, the exemption would not be allowed. The net returns from the policy would be taxed at your income tax slab rates.

Tax benefits on Life Insurance plans

Section

Tax benefit

Section 80C

Tax benefit on premiums paid up to Rs.1.5 lakhs per financial year

Section 80CCC

Tax benefit on premiums paid for pension plans, up to Rs.1.5 lakhs, including the deduction allowed under Section 80C

Section 80CCE

This section allows for a maximum deduction of Rs.1.5 lakhs under Section 80C and 80CCC

Section 80D

Tax benefit on premium paid for health insurance plans or health insurance riders. The limit is up to Rs.25,000 if you are below 60 or Rs.50,000 if you are a senior citizen

Section 80DD

Deduction allowed if you have a disabled dependent.

Limit is Rs.75,000 if disability is between 40% to 80% and Rs.1.25 lakhs if it is more than 80%

Section 10 (10A)

Exemption allowed on the commuted pension from a deferred pension plan. Limit of exemption is up to 1/3rd of the total corpus

Section 10 (10D)

Exemption allowed on payout under policy subject to satisfaction of conditions mentioned therein.

Tax Implication on Death Benefit:

Any type of death benefit received from a life insurance policy would be fully exempt from tax. In this case, there are no conditions for the exemption. Even if the premium does not qualify under Section 80C of the Act, the death benefit would be fully tax-free. 

 

Tax benefits on Life Insurance Policies of Bajaj Allianz Life

Here’s a look at the tax benefits that you can receive on the life insurance policies of Bajaj Allianz Life –

Term plan

Bajaj Allianz Life

A Non Linked, Non Participating, Individual Life Insurance Term Plan

  • Section 80C benefit available on premium
  • Death benefit would be fully tax exempt
  • Maturity benefit if any, tax-free under Section 10(10D)
ULIP

Bajaj Allianz Life

A Unit-linked Non-Participating Individual Life Savings Insurance Plan

  • Section 80C benefit available on premium
  • Death benefit would be fully tax exempt
  • Maturity benefit if any, tax-free under Section 10(10D) if the Read More aggregate annual premium is up to an amount of Rs.2.5 lakhs, subject to satisfaction of conditions mentioned therein. If the annual premium exceeds Rs.2.5 lakhs, the benefit would be taxed as capital gain depending on the type of fund that you invest in.Read Less
Savings Plan

Bajaj Allianz Life

A Non-Linked, Participating, Guaranteed Income Life Insurance Plan

  • Section 80C benefit available on premium
  • Death benefit would be fully tax exempt
  • Maturity benefit if any, tax-free under Section 10(10D) including bonus, subject to satisfaction of conditions mentioned therein
Investment plan

Bajaj Allianz Life

A Non-Linked, Participating, Guaranteed Income Life Insurance Plan

  • Section 80C benefit available on premium
  • Death benefit would be fully tax exempt
  • Maturity benefit if any, tax-free under Section 10(10D) including bonus, subject to satisfaction of conditions mentioned therein
Health plan

Bajaj Allianz Life

Covers 36 Critical Illness Including Heart & Cancer

  • Section 80D benefit on the premium amount
Annuity plan

Bajaj Allianz Life

A Non-Linked Non-Participating Immediate & Deferred Annuity Plan

  • Section 80C benefit available on a premium paid for the deferred plan
  • Death benefit would be fully tax exempt
Child plan

Bajaj Allianz Life

A Non linked, Non Participating, Individual, Life Insurance Savings Plan

  • Section 80C benefit available on premium
  • Death benefit would be fully tax exempt
  • Maturity benefit if any, tax-free under Section 10(10D) including bonus, subject to satisfaction of conditions mentioned therein

TDS on Life Insurance Policies

TDS means Tax Deducted at Source. It is a tax deducted on your behalf from different types of income that you receive. In the case of life insurance policies, usually, no TDS is deducted from the policy benefits. However, if the policy is not satisfying conditions mentioned under Section 10(10D) of the Act, TDS is applicable on gains from the policy.

 

The TDS rate is 5% if you have provided your PAN Card details to the insurer. If, however, your PAN Card details have not been provided, the TDS rate increases to 20%.

 

TDS would be deducted from the net return/gain from the policy. The net return/gain would be calculated as follows –

 

Net return/Gain = Amount received from policy– aggregate premium paid

Example 1

Aman buys a life insurance policy of a death sum assured of Rs.10 lakhs and a term of 10 years. He bought the policy on 1st April 2013. He paid a premium of Rs.50,000 every year. On maturity, he received Rs.12 lakhs. 

Tax treatment –

  • 10% of the death sum assured = 10% of Rs.10 lakhs = Rs.1 lakh
  • Premium paid = Rs.50,000 per annum
  • Since the premium is up to 10% of the death sum assured, the maturity benefit would qualify for an exemption under Section 10(10D)
  • TDS on the policy – nil since the maturity benefit is exempted under Section 10(10D).

Example 2

Rahul buys a life insurance policy on 1st July 2012. The sum assured is Rs.10 lakhs, and the premium is Rs.1.25 lakhs per annum. The term of the plan is 8 years. On maturity, he receives Rs.12 lakhs which also includes a bonus.

Tax treatment –

  • 10% of the death sum assured = 10% of Rs.10 lakhs = Rs.1 lakh
  • Premium = Rs.1.25 lakhs per annum
  • Date of buying the policy – 1st July 2012)
  • Since the premium is greater than 10% of the death sum assured, the maturity benefit is not exempted from tax under Section 10(10D).
  • Maturity benefit is Rs.12 lakhs
  • TDS applicable – 5% TDS on the net returns
  • Net returns = maturity benefit – aggregate premium paid = 12 lakhs – (Rs.1.25*8) = Rs.12 lakhs – Rs.10 lakhs = Rs.2 lakhs
  • TDS applicable = 5% of Rs.2 lakhs assuming PAN card has been submitted = Rs.10,000

Rahul would, thus, get a benefit of Rs.11.9 lakhs after deducting a TDS of Rs.10,000 from the maturity benefits.

Tax Liability of Single Premium Policies

Single premium policies are also treated as regular or limited premium policies when it comes to taxation. The tax benefits are as follows –

  • Premiums qualify for a deduction under Section 80C up to an amount of Rs.1.5 lakhs. The conditions of Section 80C should be fulfilled to claim this deduction
  • The death benefit is always tax-free
  • The maturity benefit is exempted from tax under Section 10(10D) if the conditions of the section are fulfilled.
  • If the maturity benefit is not exempted from tax under Section 10(10D), TDS on the maturity proceeds would apply as per provisions of Section 194DA of the Act.
  • In the case of ULIPs, if the aggregate annual premium from all ULIP plans which are issued on or after 1 Feb 2021 exceeds Rs.2.5 lakhs, the maturity proceeds would attract tax. The returns would attract capital gain tax depending on which fund the premium was invested in.

Frequently Asked Questions

Where can I invest to save tax?

There are different avenues wherein you can invest to save tax. A few of these are: -

  • Life insurance plans
  • Equity Linked Saving Scheme (ELSS) of mutual funds
  • 5-year fixed deposits
  • Contribution to Deferred annuity plan
  • Contribution to pension plan
  • Public Provident Fund
  • Senior Citizen Saving Scheme (available only for senior citizens)
  • Health insurance policy
  • National Saving Certificate
  • Sukanya Samriddhi Yojana
  • National Pension System
  • Saving bank account
  • Charitable donations

You can invest in one or more of these avenues and save taxes under the different sections of the Income Tax Act, 1961.

How much should I invest to save tax?

The amount that you should invest depends on the section under which you are claiming a deduction on your investment. For instance, Section 80C allows a tax deduction on a maximum investment of Rs.1.5 lakhs. Similarly, under Section 80D, a maximum deduction is allowed of Rs.1 lakh.

So, check the section under which you can get a tax benefit and the cappings specified under the section. Depending on the limit, you can invest and save taxes.

Is ULIP a good tax-saving investment?

Yes, ULIP is a preferred tax-saving investment avenue because of the following reasons –

  • The amount of premium that you pay qualifies for a deduction under Section 80C. The maximum deduction that you can get is up to an amount of Rs.1.5 lakhs.
  • If you switch between the available funds, the amount switched would be tax-free
  • Partial withdrawals are tax-free, subject to satisfaction of conditions mentioned in Section 10(10D) of Income Tax Act 1961.
  • Any death benefit paid is tax-free since the amount would be exempted in your hands
  • On maturity, the maturity benefit would qualify for an exemption under Section 10(10D) provided that the aggregate annual premium was up to an amount of Rs.2.5 lakhs and subject to satisfaction of conditions mentioned in Section 10(10D) of the Act.
  • Top-up premiums would also enjoy tax deduction under Section 80C.

How to plan your tax-saving investments for the year?

You should, first, assess your risk appetite and identify your financial goals. Then, you should identify the tax-saving investment avenues that align with your risk appetite and goals. Then you can plan your tax-saving investments for the year.

When planning tax-saving investments, understand the tax implication of each investment avenue. Also, check if the returns from the avenue would be taxable or not. Make sure that the investment tenure also matches your requirements. 

How to choose the right tax-saving investment plan?

The choice of the suitable tax-saving investment plan depends on various factors. These factors are as follows –

  • Your financial goals – The investment plan should align with your financial goals. For instance, if you want to save for retirement, you should choose an avenue which allows you to do that, like a pension plan or an NPS scheme.
  • Your risk appetite – Assess your risk appetite, i.e., whether you like to take high risks or want guaranteed returns. Depending on your risk appetite, you should choose investment avenues. For instance, equity-oriented investment avenues may be considered suitable if you are a risk-taker and don’t mind taking on aggressive volatility risks. On the other hand, if you are risk-averse and prefer guaranteed returns, you may consider choosing debt instruments like fixed deposits, endowment plans, etc.
  • The investment tenure – the investment tenure of the plan should match the tenure of your goals. For instance, if you want to save for a short period of time, say a year or two, you may consider investing in fixed deposits, savings accounts or so. If, on the other hand, you want long-term savings, you may choose insurance plans, PPF schemes, etc.
  • Asset allocation – Lastly, diversify your portfolio to mitigate risks and enhance the return potential. Choose different types of investment instruments for a balanced and diversified portfolio.

How many tax-free instruments can one have?

There is no limit to the tax-free instruments that you can have. You can choose multiple instruments to maximise tax savings and minimise your tax liability. However, there is capping in the amount of deduction allowed depending on the section under which the deduction is claimed.

How can I reduce my taxes legally?

Yes, the Income Tax Act, 1961, allows various tax-saving sections that allow you to reduce your taxes liability. You can get tax deductions on your investments and exemptions on your returns if you invest in tax-saving instruments and save your taxes legally. 

How to see how effective your tax-free instruments are?

To check the efficacy of your tax-free investments, assess their returns and the tax that they help you save. The preferred instruments would be the ones that help you lower your tax liability without compromising on the returns.

Will the nominee pay income tax on the maturity amount of the Life Insurance Policy?

The maturity benefit of a life insurance policy is never paid to the nominee. It is paid to the policyholder himself. The policyholder, in turn, would have to pay income tax on income from policy at the time of maturity if the conditions of exemption of Section 10(10D) or Section 10(10A) are not met.

Will the nominee pay income tax on a Death Claim on the Life Insurance Policy?

The death benefit received from a life insurance policy is completely tax-free. Thus, the nominee would not have to pay any income tax on the death claim received from a life insurance policy.

Tax benefits as per prevailing Income tax laws shall apply. Please check with your tax consultant for eligibility.

Risk Factors and Warning Statements: Bajaj Allianz Life Insurance Company Limited and Bajaj Allianz Life Smart Protect Goal, Bajaj Allianz Life Goal Assure, Bajaj Allianz Life Flexi Income Goal - Income Benefit, Bajaj Allianz Life Flexi Income Goal - Enhanced Benefit, Bajaj Allianz Life Health Care Goal, Bajaj Allianz Life Guaranteed Pension Goal, Bajaj Allianz Life Assured Wealth Goal – Step Up Income  are the names of the company and the products respectively and do not in any way indicate the quality of the product and its future prospects or returns. Unlike traditional products, Bajaj Allianz Life Goal Assure is a Unit Linked Insurance Plan (ULIP). Investment in ULIPs is subject to risks associated with the capital markets. The policyholder is solely responsible for his/her decisions while investing in ULIPs. For more details on risk factors, terms and conditions please read sales brochure & policy document (available on www.bajajallianzlife.com) carefully before concluding a sale.  Regd. Office Address: Bajaj Allianz House, Airport Road, Yerawada, Pune – 411006. IRDAI Reg. No.: 116.| CIN : U66010PN2001PLC015959 | Mail us : customercare@bajajallianz.co.in | Call on : Toll free no. 1800 209 7272 | Fax No: 02066026789 |

Bajaj Allianz Life Smart Protect Goal - A Non-Linked, Non Participating, Pure Life Term Insurance Plan (UIN: 116N163V03),

Bajaj Allianz Life Goal Assure - A Unit-linked Non-Participating Life Insurance Plan(UIN: 116L153V03),

Bajaj Allianz Life Flexi Income Goal - Income Benefit - A Non Linked, Participating, Guaranteed Income Life Insurance Plan(UIN: 116N162V02),

Bajaj Allianz Life Flexi Income Goal – Enhanced Benefit, - A Non Linked, Participating, Guaranteed Income Life Insurance Plan(UIN: 116N162V02),

Bajaj Allianz Life Health Care Goal -  Covers 36 Critical Illness Including Heart & Cancer (UIN: 116N144V02),

Bajaj Allianz Life Guaranteed Pension Goal - A Non-Linked, Non- Participating, Deferred & Immediate Annuity plan (UIN: 116N167V06),

Bajaj Allianz Life Assured Wealth Goal – Step Up Income- A Non linked, Non Participating, Individual,  Life Insurance Savings Plan  (UIN: 116N170V06),

The Logo of Bajaj Allianz Life Insurance Co. Ltd. is provided on the basis of license given by Bajaj Finserv Ltd. to use its “Bajaj” Logo and Allianz SE to use its “Allianz” logo. All charges/ taxes, as applicable, will be borne by the Policyholder.