What is tax deduction?
Let's take an example to understand this clearly. Mr. Verma has a yearly income of Rs.3,50,000. He pays annual premiums of Rs.72,000 and Rs.28,000 respectively for his life insurance policy and his ULIP. This amount is deducted from his gross taxable income and therefore he only has a net taxable income of Rs.2,50,000.
Would I get a Tax Benefit (under Section 80C) on the premium of life insurance policies?
You will be eligible for tax deductions under Section 80C on the premiums of your life insurance plans.
Are Sections 80CCC and 80CCD included in Section 80C?
Sections 80CCC and 80CCD are a part of Section 80C in relation to pension plans. Under the sub-section of 80CCC, you can invest a maximum of Rs.1lac in a pension plan. Under the sub-section of 80CCD, investments can be made in the National Pension Scheme of a maximum of 10% of your earnings. Contributions beyond 10% of your earnings won't qualify for a tax deduction.
Are the premium amounts paid for family members included under Section 80C?
You can get a tax benefit if you are paying the insurance premium for your spouse. But no deductions are available for premiums paid for parents or children.
What happens when the premium is not paid?
Non-payment of premium leads to the discontinuation of the insurance policy. If the insurance policy is discontinued, you can not avail of any tax benefits under Section 80C.
What is the minimum sum assured required to benefit from Section 80C?
In the last budget, it was said that all policies bought after March 31, 2012 will have to have a sum assured amount that is at least ten times the annual premium amount. If this is not the case, you will not qualify for a tax benefit. This is a new rule and doesn't apply to policies bought before March 31, 2012. So before buying a policy, it is very important to keep this point in mind.
Apart from this, you must also remember that the life cover should never be under the 10-times-boundary, even in the years to come.
The sum assured does not include any bonuses or other payments. These extra sums will not be taken into consideration while calculating the tax benefit.
So now that you know more about the tax benefits under Section 80C, you will be able to buy policies that help you in getting a deduction. However, always keep in mind what the experts said - do not buy insurance just to save tax. Buy insurance as and when you need it.
Written By: Deepak Yohannan
The author is the CEO of MyInsuranceClub.com, an online insurance price & features comparison portal
For more articles by Deepak Yohannan, please visit MyInsuranceClub.com
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