How To Make The Most Of Tax Benefits From Life Insurance?

IndiaFirst Life
• 26 Sep, 2024

Life insurance is not only a crucial tool for financial protection but also a tax-saving option. Understanding its benefits can help you optimise your tax savings and make the most out of your investment. Here’s a comprehensive guide on how to leverage life insurance for maximum tax benefits.

Tax Benefits Under Section 80C

The Income Tax Act has a Section 80C which is one of the most popular tax-saving options available. It allows deductions of up to ₹1.5 lakh per annum on premiums paid towards life insurance policies. Here are a couple of things to remember:

The policy must be in the name of the taxpayer, spouse, or children.
Deductions are applicable for policies from any life insurance company approved by IRDAI.

Impact of Budget 2025:

The new tax regime’s revised slabs have increased the tax-free income limit to ₹12.8 lakh (from ₹7 lakh).
If you opt for the new regime, you cannot claim deductions under Section 80C, making it essential to evaluate which tax structure benefits you more.

Tax Exemption Under Section 10(10D)

Under Section 10(10D), the maturity proceeds subject to certain conditions, and death benefits received from a life insurance policy are tax-free. This is a significant tax exemption for life insurance that ensures you receive the full benefits of life insurance without any tax liabilities.

Some of the conditions for exemption include:

The premium should not exceed 10% of the sum assured, if the policy is issued on or after April 1, 2012.
For policies issued before April 1, 2012, the premium should not exceed 20% of the sum assured.

For policies issued on or after April 1, 2013 to a person who is suffering from disability or a particular disease , the premium should not exceed 15% of the sum assured.

Budget 2025 Update:

High-premium ULIPs will now be taxable beyond a certain threshold, reducing tax advantages for high-net-worth individuals.
If you opt for the new regime, you cannot claim deductions under Section 10(10D).

Health Insurance and Critical Illness Riders

Adding health insurance or critical illness riders to your life insurance policy not only provides additional coverage but also offers tax benefits under Section 80D of Income-tax Act, 1961 subject to limit and terms and conditions as prescribed therein. Premiums paid for these riders can be claimed as deductions, further enhancing your tax-saving options.

Budget 2025 Update:

As per the new income tax slabs in Union Budget 2025, you cannot claim deductions under Section 80D, making it essential to evaluate which tax structure benefits you more.

Using an Income Tax Calculator

A valuable tool in planning your tax-saving strategy, an income tax calculator can help you understand how much you can save through various tax-saving options, including life insurance policies. By inputting your income, investments, and eligible deductions, you can get a clear picture of your tax liabilities and potential savings.

When selecting a life insurance policy, consider the tax benefits it offers. However, do not forget that tax benefits need not be the primary goal of getting a policy. The best insurance policy for tax benefits should align with your financial goals while maximising your tax savings.

** Tax exemptions are as per applicable tax laws from time to time.

by IndiaFirst Life
Headquartered in Mumbai, IndiaFirst Life Insurance Company Limited (IndiaFirst Life), with a paid-up share capital of INR 754.37 crore, is one of the fastest growing private life insurers in India in terms of New Business IRP in Fiscal 2023. Our key differentiators are our simple, easy-to-understand products that are optimally priced. As of Sept 30, 2023, we offered 30 retail products, 13 group products along with six riders (across retail and group portfolios), along with policies under the PMJJBY scheme, catering to protection, savings, health and retirement needs of our customers, leveraging multiple distribution capabilities and augmenting various investment options. In all propositions under the categories of Participating Plans, Non-Participating Savings Plans, Non-Participating Protection Plans, Unit Linked Insurance Plans, Group Protection Plans, Corporate Funds Plans, Riders & PMJJBY form a complete suite of offerings that help our customers prepare for the certainties of life. Our products are easy to understand and optimally priced with a developed comprehensive risk management framework/policy.