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Life Insurance v/s Income Tax : U/s 80C & (10D)

Some Tax Payers normally feel that Life Insurance Premium paid u/s 80C upto 1 lakh and proceeds received on maturity of the policy received u/s 10(10D) are completely tax free.

But this is not cent percent correct.

Sec. 80C deduction & 10 (10D) exemption are subject to some conditions.

Deduction allowable from Income for payment of Life Insurance Premium (U/s 80C):

Life Insurance premium paid on the life of the Assessee or on the life of the spouse or any child of Assessee & in the case of HUF, provided premium paid is not in excess of 20% of Capital Sum Assured (applicable on Policies taken on or after 01.04,2003) & in excess of 10% of Capital Sum Assured (applicable on the Policies taken on or after 01.04-2012).


Example: (1)

Mr. Ashok has taken a Life Insurance policy with a Sum Assured of Rs. 2 Lac with an yearly Premium of Rs. 60,000 in F/Y 2009-10.

In this case Mr. Ashok is eligible to claim 20% of Sum Assured i.e Rs. 40,000 only out of total premium of Rs. 60,000 paid u/s 80C.

This rule is applicable on policies issued on or after 1.4.2003. So if Policy is issued prior to 1.4.2003 then one can claim full premium paid u/s 80C without considering 20% Limit.

Example : (2)

Mr. Ashok takes a Policy with a Sum Assured of Rs. 1 lao and pays an yearly premium of Rs. 15,000/- on a policy taken after 1-4-2012. In this case he is eligible to claim only 10% of the Sum Assured i.e 10,000/- out of the 15,000/- premium paid u/s 80C.

Lock In period: Lock in period has also been fixed u/s 80C.

Assessee cannot terminate contracts of Life insurance, 2 years from date of commencement of Policy in case of single premium policy and in other case before payment of two years’ Insurance premium.

If one violates above rules then deduction claimed in earlier years will be added in the income of the previous year in which rules are violated.

Benefits underinsurance policy - Section 1O(1OD) As per Sec. 10(1OD) of Income Tax Act, 1961, any sum received under a life insurance policy, including the sum allocated by way of bonus on such policy is exempt from tax. However, this rule does not apply to following amounts:

• Any sum received other than as death benefit under an insurance policy which has been issued on or after April 1, 2003, and if the premium paid in any of the years during the term of the policy is more than 20% of the Sum Assured & 10% of the Sum Assured in case of policies issued on or after 1-4-2012.

• Maturity amount consisting of the portion of premium paid by the Assesse is not taxable.

• Sum received u/s 8ODD (3).

• Any sum received under a Keyman Insurance Policy.

• In brief, for Sec.80C, year of payment and Sum Assured is to be checked for 20% & 10% clause. However, in case of 10 (1OD) this clause is applicable throughout the policy term.

Life Insurance Premiums: Any amount that one pays towards life insurance premium for spouse or children can also be included in Sec.80C deduction.



Note :

  1. Life insurance premium paid for Parents (Father/Mothr/Both) or in-laws is not eligible for deduction u/s 80C.

  2. 2.If premiums are paid for more than one insurance policy, all the premiums can be included.

  3. Insurance premium paid for self, spouse or children is allowed as deduction u/s 80C of I.T. Act.

  4. Children for the definition includes dependant as well as independent, married as well as bachelor.

  5. It is not necessary to have the insurance policy from LIC — even insurance bought from private players can also be considered here.



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