22 Jan 2020, 10:45 — 8 min read
Background: Investing in life insurance and health insurance policy not only provides financial cover in the case of death or major sickness, but also offers certain tax benefits. In their previous article, Vakilsearch shared legal recourse when a borrower defaults on loan. In this article they explain how to claim income tax benefits of insurance policies.
If your family is dependent on your income, it’s always recommended to purchase a life insurance or health insurance policy to cover your life. The insurance policy will not make up for the emotional loss, but it will surely shield your family from financial burden. There are numerous insurance policies for different categories based on age group and gender. While you choose a plan, it is important to understand the taxability on insurance cover because you enjoy income tax benefits on your insurance policy.
Under section 80C (along with deduction u/s 80CCC & 80CCD), a taxpayer can claim total deduction up to INR 1,50,000 for that financial year/assessment year.
Under Section 80D, a maximum of INR 25,000 is allowed in case of medical insurance premium payment or payment made for a preventive health check-up. This is for the benefit of the assessee or his/her spouse or his/her dependent children.
Additional deduction of INR 25,000 is available if the medical insurance taken in the name of a senior citizen.
On e-filing income tax returns, the taxable income is arrived only after making all deductions under section 80C to 80U from Gross Total Income (GTI).
Taxable Income = Gross Total Income – Tax deduction u/s 80C to 80U
1. Under chapter VIA (u/s 80C to 80U), no deductions shall be allowed from the following income:
2. The total deduction claimed cannot exceed the Gross Taxable Income (GTI) that year.
3. Under section Section 80C, an individual or Hindu Undivided Family (HUF) can claim tax deductions on the following
In the case of an individual, the tax deduction is available on the insurance policy taken in the name of a taxpayer or his/her spouse or his/her children.
In the case of HUF, the tax deduction is available on the insurance policy taken in the name of any of the family members in the HUF.
No deduction can be claimed in the name of any person other than the persons mentioned above.
There are minimum holding period for certain investments and deposits to claim deductions u/s 80C
Note: In case of withdrawal of the Senior Citizens Saving Scheme or Post Office Time Deposit before the completion of the minimum holding period of 5 years, the amount withdrawn will be taxed in that year.
There are certain restrictions on tax deductions with respect to the capital sum assured based on the date of issue of policy.
Under Section 80C, a taxpayer makes a deduction on any contribution. It can be towards statutory provident fund or recognised PF or superannuation fund or public provident fund (PPF).
U/s 80D, an individual or a HUF can claim deductions on the following things:
In case of an individual, the income tax deduction is available on the medical insurance policy. But it has to be taken in the name of a taxpayer or his/her spouse or his/her dependent children, his/her parents.
In case of HUF, the tax deduction is available on the medical insurance policy in the name of any of the family members in the HUF.
For medical expenditure, the deduction is allowed only when it is incurred on the health of senior citizens.
'Senior citizen' is a person who is a resident in India at the age of sixty or above. No deduction can be claimed in the name of any person other than the persons mentioned above.
The total tax deduction cannot exceed INR 25,000, in aggregate, in respect of medical insurance premium payment made on the health of any member of HUF.
The above-mentioned limit will be increased to INR 50,000 in the following conditions:
Tax deductions are not only available for investments but also for specified expenditures incurred by the taxpayers. In order to claim tax benefits, do mention the total deductible amount in the relevant column while filing ITR.
Also read: Uberrimae Fides and the moment of truth
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Posted byVakilsearch Staff
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