Skip to main content

Life insurance and Its tax implications

Invest In Tax Saving Mutual Funds Online

Call 0 94 8300 8300 (India)

 

 

Normally people do their investment planning at the fag end of the month of March, hence majority of life insurance policies are purchased on tax considerations only and that too in the last quarter of the financial year. No wonder, many of end up committing some mistakes while buying insurance, just in a hurry to save tax. However, now that we are through with the last minute activity, and have entered into the new financial year, it is time that we take a fresh look at the various provisions on insurance as contained under the income tax laws.

Here I intend to discuss the aspects of tax treatment of Life Insurance Premium as well as tax treatment of money received from insurance company. Since implementation of DTC in the immediate future is doubtful, I have deliberately skipped discussion on DTC.

Quantum of Deductions for payment of premium:

Under the present provisions of Section 80 C, deduction in respect of life insurance premium paid is available up to a maximum of Rs. 1 lakh. This deduction is available with other eligible items like tuition fee of your children, EPF, NSC, ELSS and repayment of principal amount of home loans etc. This deduction is available for life insurance polices, on the life of yourself, your spouse or your child, though child may be major or a minor or even married or unmarried. This particular aspect can be used for tax planning.

In case of senior citizens, normally they do not have much to claim, which qualifies under Section 80C and thus the limit of one lakh in majority of the cases does not get fully utilized. In such cases they can opt to pay the life insurance premium of their earning and grown up sons or daughters. This is because in the case of the grown up sons and daughters, the limit of Rs. 1 lakh, in majority of the cases is already used up by school fees and repayment of home loans, thus life insurance premium can-- not be claimed under Section 80C. Financial dependence of son or daughter on parent is not the requisite for claiming tax benefits on insurance premiums by parents.

One more aspect about claiming tax benefit for life insurance premium, not generally known to many, that it is not necessary that the premium should be paid by the same person year after year. This can be paid and claimed by different person as long as the same is paid to keep the life insurance policies in force on the life of persons specified in Section 80 C. Thus shortfall in parents' accounts can be filled in from surplus of the earning and grown up children's account from time to time.

Please note that there is no restriction on the number of children in respect of whom you can pay the premium and claim this deduction unlike for tuition fee where the deduction can only be claimed for two children.

Restrictions on Life Cover required for calming the deduction:

As per Section 80 C, the quantum of premium, which can be claimed is restricted in relation to the amount of the sum assured. As per the provisions applicable from April 1, 2012, any premium paid in excess of 10% of the sum assured should not be allowed under Section 80 C. Earlier this limit was 20% of the sum assured. For this purpose the sum assured means that the minimum amount which the insurance company has agreed to pay in the event of death. This amount will not include any bonus payable on such policy. Moreover any premium to be refunded shall also not be considered while calculating the sum assured.

Restriction on continuance of the Life Insurance Policy

In order to ensure that the deductions claimed in respect of premium paid earlier is not withdrawn in any year; subsequently you are required to keep the life insurance policy alive for a certain number of years. In case of a single premium policy, you cannot terminate the policy within two years from the date of commencement of the Life insurance Policy. In case of any other life insurance policy, the tax benefits granted to you shall be added to your income subsequently if you do not pay the insurance premium for two years in respect of that policy.

Tax Treatment of money received from Insurance Company

Generally people perceive that all monies received from Insurance Companies are exempt. This is not so. Section 10(10) provides for exemption for money received from insurance company in respect of insurance policy. First amount received in respect of all Key man Insurance policies are taxable. Secondly money received on death in respect of all the life insurance policies are exempt except those issued as key-man's insurance policy.

In respect of money received from Insurance Company other than in the event of death on all life insurance policies issued prior to April 1, 2003 will also be exempt from tax. However in respect of life insurance polices issued on or after April 1, 2003 but before March 31, 2012, money received from insurance company, other than on death, shall become taxable if premium payable in respect of this policy exceeds 20% of the sum assured in any of the year. However in respect of policies issued after March 31, 2012, the same will become taxable in the hands of recipient if the premium in respect of such policies exceeded 10% of the sum assured in any year.

In addition to above any money received in case of life insurance policy purchased for maintenance of physically disabled person under Section 80DD if such person dies before the proposer the money received by the proposer shall also be taxable.

So from the above discussion it becomes amply clear that you should take into account various factors before you buy any life insurance policy so that the premium paid is allowed and the money received in respect of such insurance policy is does not become taxable.

Happy Investing!!

We can help. Call 0 94 8300 8300 (India)

Leave your comment with mail ID and we will answer them

OR

You can write back to us at PrajnaCapital [at] Gmail [dot] Com

---------------------------------------------

Invest in Tax Saving Mutual Funds ( ELSS Mutual Funds ) to upto Rs 1 lakh and Save tax under Section 80C.

Invest Tax Saving Mutual Funds Online

Tax Saving Mutual Funds Online

These links can be used to Purchase Mutual Funds Online that are regular also (Investment, non-tax saving)

Download Tax Saving Mutual Fund Application Forms from all AMCs

Download Tax Saving Mutual Fund Applications

These Application Forms can be used for buying regular mutual funds also

Some of the best Tax Saving Mutual Funds available ( ELSS Mutual Funds )

  1. ICICI Prudential Tax Plan Invest Online
  2. HDFC TaxSaver Invest Online
  3. DSP BlackRock Tax Saver Fund Invest Online
  4. Reliance Tax Saver (ELSS) Fund Invest Online
  5. Birla Sun Life Tax Relief '96 Invest Online
  6. IDFC Tax Advantage (ELSS) Fund Invest Online
  7. SBI Magnum Tax Gain Scheme 1993 Invest Online
  8. Sundaram Tax Saver Invest Online
  9. Edelweiss ELSS Invest Online

------------------

Best Performing Mutual Funds

    1. Largecap Funds Invest Online
      1. DSP BlackRock Top 100 Fund
      2. ICICI Prudential Focused Blue Chip Fund
      3. Birla Sun Life Front Line Equity Fund
    2. Large and Midcap Funds Invest Online
      1. ICICI Prudential Dynamic Plan
      2. HDFC Top 200 Fund
      3. UTI Dividend Yield Fund
    1. Mid and SmallCap Funds Invest Online
      1. Reliance Equity Opportunities Fund
      2. DSP BlackRock Small & Midcap Fund
      3. Sundaram Select Midcap
      4. IDFC Premier Equity Fund
    1. Small and MicroCap Funds Invest Online
      1. DSP BlackRock MicroCap Fund
    1. Sector Funds Invest Online
      1. Reliance Banking Fund
      2. Reliance Banking Fund
    1. Tax Saver MutualFunds Invest Online
      1. ICICI Prudential Tax Plan
      2. HDFC Taxsaver
      3. DSP BlackRock Tax Saver Fund
      4. Reliance Tax Saver (ELSS) Fund
    2. Gold Mutual Funds Invest Online
      1. Relaince Gold Savings Fund
      2. ICICI Prudential Regular Gold Savings Fund
      3. HDFC Gold Fund

Popular posts from this blog

What are the factors affect the changes in Interest Rate of Fixed Deposits?

  What are the factors affect the changes in rate of Fixed Deposits? Fixed Deposits are now considered to be a very old fashioned method of saving, but still attract many investors since they have guaranteed returns at the end of the tenure of the investment at a decent interest rate. There are various factors that affect the rates of interest for a Fixed Deposit. Policies of the Reserve Bank of India   - The several norms and restrictions posed by the Reserve Bank of India , in order to gain optimum control over credit and inflow and outflow of fund throughout the country. The repo rate changes, cash reserve ration tends to change and these changes affect the banking products like Fixed Deposits, loans etc. Recession   - When unemployment in a country crosses the benchmark set Recession hits, and slowly the country faces an economic slow movement, affecting the purchasing power of the people in the country, forcing the Reserve Bank of India to release more funds in the financial marke...
Read more

Understanding Your Cibil Credit Information Report

   WE ARE all familiar with the anxiety and uncertainty that we feel when applying for a loan. After all, it's the lender who decides whether we can own our dream home, our first car, or whether our children can pursue higher education. In a nutshell, a better life depends on the lender's decisions.    While other factors do play a part in the lender's decision, the Cibil Credit Information Report ( CIR ) plays a crucial role in a lender's decision to approve a loan application.    Previously, lenders would treat all loan seekers equally. Each applicant, if approved by the lender's internal credit policy, would be charged at the same interest rate for a particular loan size and purpose. The lenders would charge a higher interest rate to all the borrowers, in order to compensate for the possible default of a small portion of the loan disbursed. In other words, it's like a professor (the lender) punishing an entire class (borrowers) for the mischief played b...
Read more

Capital Protection Oriented Funds

Download Tax Saving Mutual Fund Application Forms Invest In Tax Saving Mutual Funds Online Buy Gold Mutual Funds Leave a missed Call on 94 8300 8300   Capital Protection Oriented Funds   Erosion of capital is one of the key concerns for investors wanting to invest in equity mutual funds. To address this concern, asset management companies have launched Capital Protection Oriented Funds (CPOFs). What are CPOFs? CPOFs are generally three to five-year, closed-ended funds where 70-80% of the portfolio is invested in fixed income securities, which mature on or before the scheme's tenure. The investment in fixed income securities grows to 100% at the end of the tenure, providing the investor with capital protection. The remaining portion (20-30%) is used to take exposure to equity, which provides the upside. Exposure to equities is either by directly buying equity stocks (plain vanilla CPOFs) or by b...
Read more

About CRISIL IPO Grading

CRISIL IPO (Initial Public Offering) Grading is an opinion on the fundamentals of the graded issue that reflects CRISIL's independence and expertise. This opinion is expressed as a relative assessment in relation to other listed equity securities in India. The assessment is based on a grading exercise carried out by industry specialists from CRISIL Research. A CRISIL IPO Grade 5/5 indicates strong fundamentals and a CRISIL IPO Grade 1/5 indicates poor fundamentals. CRISIL IPO Grading reflects its assessment of the graded company's equity fundamentals as distinct from an assessment of debt fundamentals. A CRISIL IPO Grade should not be construed to mean a comment on the price of the graded security nor is it a recommendation to invest or not to invest in the graded security. However, this grade is not an opinion on whether the issue price is appropriate in relation to the issue fundamentals. The grade is not a recommendation to buy / sell or hold the graded instrument, or a comm...
Read more

Mutual Fund Review: ING Dividend Yield

  ING Dividend Yield's small assets enable the fund manager to churn in impressive returns… Strategy The aim of the fund is to invest in stocks which offer a high dividend yield. This fund deploys a value based strategy which aims to gain from investing in fundamentally strong and free cash flow generating businesses. The scheme focuses not only on growth but also on the cash generated by the business, which mostly leads to stable returns even in volatile markets. This fund has a low volatility because of its investment in high yielding stocks. The scheme tries to include stocks that yield dividend above the dividend yield of the Nifty and stocks with liquidity, which throws up a universe of 150 stocks.   Our View Launched in October 2005, this fund invests at least 65 per cent of its assets in high dividend yield stocks. The fund has consistently maintained a mix of stocks across varying market capitalisation, with a higher tilt to mid caps compared to small caps. Howev...
Read more
Related Posts Plugin for WordPress, Blogger...
Invest in Tax Saving Mutual Funds Download Any Applications
Transact Mutual Funds Online Invest Online
Buy Gold Mutual Funds Invest Now