February and March are the tax planning months for the taxpayers. Every taxpayer thinks how to reduce his tax liability. Life insurance premium is the one of the most well-known and easily available instrument for saving the tax under section 80C of the Income Tax Act. General FAQ regarding the tax saving through insurance premium is as follows.
How much tax taxpayer can save by paying LIC premium?
The maximum deduction under section 80C is Rs.1,50,000 from financial year 2014-2015 (Earlier limit was Rs.1,00,000 only). There are different nature of payments under section 80C for claiming the deduction 80C and Life insurance premium is one of them. If taxpayer is in 30% slab his total possible tax saving is Rs. 45000 (i.e. 30% of Rs.1,50,000).
Is it necessary to pay life insurance premium by cheque only?
There is no restriction on mode of payment. Life insurance premium can be paid in cash, cheque or by any other mode like, credit card / debit card, net banking, etc.
Insurance premium paid on life of my family member or relative is allowed as deduction under section 80C?
You can claim the deduction of the LIC premium if policy is taken on your own life, life of spouse or life of any child. Your child may be minor, major, married, unmarried, depended or independed. LIC premium paid for taxpayer’s parents or any other close relative is not deductible under section 80C. In case of Hindu undivided family (HUF) taxpayer, premium paid on the life of any member of the family is allowed as deduction under section 80C.
Can I claim a deduction of insurance premium if policy is taken from private company?
It is not necessary that policy should be taken from Life Insurance Corporation (LIC), premium paid on policy taken from any Life insurance companies approved by Insurance Regulatory and Development Authority of India (IRDA).
Are all types of insurance plans qualified for deduction under section 80C?
Yes. Taxpayer can take any insurance plan according to his requirement. Term insurance, money back policies, Unit-link investment plan (ULIP), Whole life plan, group life insurance, etc are qualify for the deduction under section 80C.
Is repayment of loan taken on life insurance policy is deductible under section 80C?
Deduction is available only for life insurance premium payment and not on repayment of loan. Even, late fees charged by insurance company, due to late payment of insurance premium are also not deductible.
What are the tax implications if I terminate the Insurance Policy?
If Life insurance policy is terminated within a period of two years, deduction already claimed in earlier years will be considered income in the year in which policy is terminated.
In case of ULIP plan, if ULIP is terminated within a period of five years, then deduction already claimed in earlier year will be considered as income in the year in which policy is terminated.
In short we can say minimum holding period of the life insurance policy is two years and for Unit –linked insurance plan is 5 years.
Can I claim deduction in current financial year, if premium due in current financial year but paid in next financial year?
No. The deduction under section 80C is available on payment basis only. If payment is due as on 31st March 2015 and premium is paid as on 1st April 2015, then you can claim the deduction under section 80C in financial year 2015-16 and not in financial year 2014-15.
After the maturity of my policy, will maturity amount is taxable?
Maturity amount of the Life Insurance is exempt under section 10(10D) of the income tax act. However, this exemption is available only when annual premium is payable is not more than 10% of sum assured.