Tax deduction can be claimed on life insurance premium paid by an individual or HUF under section 80C of Income tax act 1961.
As per section 80C, amount paid to an insurer to buy or to keep a life insurance policy in force can be claimed as a deduction from taxpayer’s gross total income before arriving at the taxable income.
Tax deduction is available on a life insurance policy brought from any insurer approved by IRDA. It’s not specific to the premium paid for policies taken from LIC.
Section 80C has specified certain conditions to claim tax deductions. Let us discuss these conditions to know when a taxpayer will be eligible to get tax deduction on life insurance premium.
Life Insurance premium must be for self, spouse or Kids
An Individual can claim tax deduction under section 80C only when life insurance policy is in the name of self, spouse or children.
Section 80C is silent on the number of children and whether the children should be a minor or major or married or unmarried. This means, an individual can buy life insurance policies for any number of children irrespective of whether they are married or unmarried or minor or major to get benefits of section 80C.
In case of HUF the policy must be in the name of any of its member.
To get tax deduction, Life Insurance Premium must be paid
To get eligible for tax deduction under section 80C the second and most important thing is that the premium must be paid during the financial year in which tax deductions are claimed.
For instance, if you want to claim tax deduction for the financial year 2018-19, then life insurance premium must be paid during the year 2018-19 i.e. it should be paid during the period starting from 01-04-2018 to 31-03-2019.
Main criterion is the date on which it’s paid not for the year it should have been paid. For example, if your premium due date falls in the previous year 2018-19 but you paid it in the financial year 2019-20, you can avail deduction under section 80C in the financial year 2019-20.
Mode of payment has not been defined in section 80C. Due to this reason, life insurance premium can be paid by cash, cheque, account transfer etc.
As per secion 80C, the person who has paid life insurance premium will be eligible for income tax deduction.This means, if your father has paid the premium for you, then he will be eligible for section 80C deduction not you.
It does not matter whether the person for whom you have paid insurance premium is dependent on you or not but the relationship criteria like spouse, children must be satisfied to get tax deduction under section 80C for life insurance premium payments.
Maximum Premium Allowed under Section 80C
As per section 80C (3), if life insurance policy is issued on or before 31.3.2012, gross premium for calculation of tax deduction should not exceed 20% of the actual sum assured. This means, premium paid in excess of 20% of sum assured will not be allowed as tax deduction.
If your policy is issued on or after 1.4.2012, above limit of 20% shall be replaced with 10%. This means only 10% of the sum assured will be eligible for tax deduction under section 80C.
Maximum limit of tax deduction
Section 80C lists several investments and expenses which can be claimed as tax deduction from assessee’s gross total income. This list includes amount paid towards life insurance premium.
As per the present law, maximum limit allowed for tax deduction U/S 80C is only Rs 1, 50,000. This means, in aggregate your tax deduction under section 80C should not exceed Rs 1, 50,000.
If in aggregate, you have invested Rs 2,00,000 in life insurance and public provided fund then your tax deduction under section 80C will get restricted to Rs 1, 50,000.
Apart from section 80C, there are two more sections i.e. section 80CCC and section 80CCD. As per section 80CCE, if you have invested in certain investments which is eligible to get deduction U/S 80CCC and 80CCD (1) then total deduction U/S 80C, 80CCC and 80CCD (1) should not exceed Rs 1, 50,000.
Minimum Lock-in period to get tax benefit of section 80C
In order to retain the tax benefit, assessee has to continue investing into the life insurance policy for a minimum number of years. In cases where insurance policy has been surrendered or discontinued, then benefit under section 80C will not be available.
In this type of situation, premium paid for the year of discontinuation will not be eligible for section 80C benefits and earlier year tax benefits will be withdrawn. This means, earlier year tax deductions will be considered as his/her income in the year in which insurance policy has been surrendered/terminated.
|Minimum Lock-in Period|
|Type of Life Insurance Policy||Number of years from the date of commencement of such policy|
|Single Premium||2 years|
Documents to be submitted to employer
If you are a salaried individual, then your employer will ask you a copy of the life insurance premium receipt paid for the policy.
You need to take photocopy of the premium receipts and submit it to your employer with a declaration.
If you are not a salaried individual, documents are not required to be submitted at the time of filing your IT return. You need to keep these receipts and submit in case asked by the departments.
Does GST on life insurance premium qualify for tax deduction U/S 80C
The concern that most individual have is whether GST paid on life insurance premium eligible for tax deduction U/S 80C.
Yes, the total amount paid on life insurance including GST qualifies for tax deduction U/S 80C as current IT rules mentions that ‘any amount paid’ to keep in force a life insurance policy is eligible for tax deduction. This means the entire premium including GST qualify for a tax deduction U/S 80C.
In case the GST amount is not considered by your employer while calculating TDS on salary, then you can claim it while filing your IT return.