Dos And Don'ts For Claiming And Retaining Tax Benefits Of Life Insurance Policies
Posted on September 30 2020
Most people think that just purchasing a life insurance policy is sufficient to claim the related income tax benefits. However, this is not actually the case. In order to claim successfully and retain the tax benefits of a life insurance policy excluding the pension policies, you have to meet certain conditions and also gait carefully. The main dos and don'ts for this purpose, as per the current income tax law, include the following.
To claim tax benefit, policy should insure you
To claim the section 80C, the tax benefit on premium paid, the policy you purchased should insure you, your spouse or your kid(s) and no one else. Policies insuring your parent’s lives will not get you any benefits under the section 80C of the Income Tax Act.
Claim deduction from income is currently Rs 1.5 lakh
Remember that total amount of the life insurance premium plus the investment in other specified avenues that can be claimed as the deduction from the gross total income under the section 80C is currently Rs 1.5 lakh.
Premium can be claimed in the same financial year
Premium can be claimed as the deduction under the section 80C only for the Financial Year in which it is paid.
Annual premium should not exceed prescribed limits
Make sure that the annual premium paid including any other sums such as service tax does not exceed the prescribed limits of 10%, 15% or 20% of the actual sum guaranteed, depending on the case. These limits vary depending on when you have purchased/purchase the policy and also whether or not you suffer from the diseases as specified under the section 80DDB read with the Rule 11DD and the section 80U. If the premium you pay is higher than the recommended limit you will not get the section 80C tax benefit on the premium paid in the excess of the limit.
Proceeds of a key man insurance policy are taxable
Be aware that the proceeds of a key man insurance policy are taxable.
Provide PAN to your insurer to avoid tax deduction
Do provide your PAN to the insurer to avoid the tax deduction at source (TDS) at a higher rate of 20% instead of a lower 2% rate where the TDS is applicable.
Do not terminate policy due to non-payment of premium
To preserve the section 80C benefits do not surrender the policy or let it lapse/terminate due to the non-payment of the premium before the minimum recommended lock in the period is over.
Tax Assist is a professional income tax consultancy in India for both corporate houses and individual tax payers; the latter comprising Salaried Individuals, Seafarers, Professionals and Non Resident Indians.
With the help of Tax Assist and its team of income tax professionals, taxpayers can minimize their Income Tax liability, maximize their net income and create opportunities to save for current and future needs while maintaining proper accounting standards and income tax returns which are compliant with the Law.