Life Insurance Tax Benefits In India Under Section 80C & 10D

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.

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 1/3^rd of the total corpus
Section 10 (10D)	Exemption allowed on payout under policy subject to satisfaction of conditions mentioned therein.

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 1/3^rd of the total corpus

Section 10 (10D)

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

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

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.

View Less

Life Insurance Guide

Articles
Calculators
Podcasts
Videos

	ULIP 1 bought on 1^st January 2021	ULIP 2 bought on 1^st March 2021	ULIP 3 bought on 1^st 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.

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

Life Insurance Tax Benefits

How to save income tax with life insurance plans?

Tax benefits offered under the Income Tax Act, 1961

Difference between Deduction And Exemption

Maturity benefit

Bonus and other additions

Surrender value

Partial withdrawals

Deductions

Deduction under Section 80C of the Act

Deduction under Section 80CCC of the Act

Deduction under Section 80CCE of the Act

Deduction under Section 80D of the Act

Deduction under Section 80DD of the Act

Exemptions

Exemption under Section 10(10A) of the Act

Exemption under Section 10(10D) the Act

Tax benefits on Life Insurance plans