A life insurance plan is a financial instrument that safeguards the financial future of the policyholder’s family. The process is something like this: the policy seeker pays periodic premiums for a specific timespan. The money is accumulated with the insurance company, and on the maturity of the term plan or as defined under the policy terms, the life insurance company pays out the sum assured to the policyholder. Life insurance is a security cushion for the person’s family or the nominees and its premium can be easily assessed using a life insurance calculator.
Life insurance provides various benefits through riders, returns on the investment of time, peace of mind, financial safety, and timely renewal is beneficial, but along with that, the policy also provides tax benefits.
The tax benefits one receives because of life insurance should be considered as one of the best benefits because these are very tangible advantages where you can calculate the result. The tax benefits lead to a decrease in the payable amount.
Tax Benefits on Life Insurance Premiums
Section 80C
Under Section 80C of the Income Tax Act, life insurance policyholders can deduct the amount of life insurance premium paid from the total taxable amount. This helps in minimising the policyholder’s tax liability.
According to India’s budget for 2023, the maximum amount that can be deducted from the taxable amount under Section 80C is ₹1.5 lakhs.
The budget also denotes that there should be a limit concerning the premium amount. If the policy is bought on or after 1st April 2012, the premium amount should not exceed 10% of the sum assured. The policies that were bought before this date have 20% of the sum assured as their maximum limit for the premium amount.
Section 10(10D)
Under Section 10(10D), the death benefit or the maturity benefit of the life insurance received from the insurance company by the policyholder’s family is completely tax-free.
Since the amount assured by the insurance company is tax-free, it saves a lot of money that could’ve been spent in the form of your tax. The entire amount is for the nominees and their financial well-being. If the same money were spent on some investment instrument, the returns on that investment would be taxed. Hence, this is a profit.
Tax Exemptions on Loans
If you take out a loan against the policy’s cash value, you can enjoy a tax exemption. That is because, according to India’s budget for 2023, the proceeds received by the policyholders from a loan taken out against policy cash value should be completely tax-free. This feature exhibits the varied benefits a life insurance plan can offer you in return for your periodic payments.
Conclusion
Knowing the benefits you can receive from the insurance policies you buy will help you understand your policy and guide you through the decision-making process. These nuances help you in finding the right choice for yourself. These life insurance tax benefits are all thanks to the premium amount that you pay against the benefits. Remember these benefits because claiming them is your right as a citizen of India and a person who owns a life insurance policy.
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