Confused about the tax provisions provided under different insurance schemes? Fret not; we’re here to make things crystal clear just for you!
It’s not uncommon for one to find the concept of income tax a little complex and intimidating. This mental wall needs to be shattered for a layman to better understand tax-saving investments and make better decisions related to tax benefits.
Today, we’re looking at an investment avenue whose tax-related dimension is not free from clutter – insurance. Ready? Let’s go!
How Is Insurance Viewed Under The Eyes Of The Income Tax Act?
When it comes to Life Insurance, a policy’s premium is eligible for a tax deduction under Section 80C of the Income Tax Act. However, a Health Insurance plan would qualify for deductions under Section 80D.
Additional Reading: Tax Deduction Myths Busted For You
Conditions For Tax Deduction – Life Insurance
- Only an individual or HUF can claim this deduction
- The individual can be an NRI or even a foreign national
- The type of policy can be a pure Term Insurance plan, a traditional plan or even a ULIP plan
- The lid on the amount that can be declared for deduction under this section is Rs. 1,50,000 within a financial year
- The Life Insurance policy can be bought to cover self, spouse, child/children
- The tax benefit gets reversed if the policy is surrendered by the holder before 2 years in the case of traditional policies and 5 years for ULIP schemes.
- Assuming that your policy was issued post April 1, 2012, it will be tax deductible only if your premium is not more than 10% of the assured sum.
- If you hold a policy that was issued pre April 1, 2012, it will be tax deductible only if the premium doesn’t exceed 20% of the total assured sum.
Conditions For Tax Deduction –Health Insurance
- As with Life Insurance, only an individual or HUF enjoys this deduction – however, this is under Section 80D.
- NRIs and foreign nationals can claim the deduction on premium paid for their Health Insurance plan
- The scope of tax deduction under Section 80D for Health Insurance policies covers premiums and expenses incurred for preventive health check-ups. It’s important to remember that only Mediclaim and critical illness plans qualify for tax deduction under Section 80D, whereas premium paid towards an accidental Insurance plan wouldn’t make the cut
- Section 80D considers only the year in which the payment has been made and not the year that the payment relates to
- Apart from preventive check-up costs that can be made by cash, any payment towards your Health Insurance premium must be made in modes other than cash to qualify for tax deduction
Additional Reading: Tax-Saving Investments To Grow Your Wealth
What Else You Need to Know About Tax Provisions Related to Insurance
As an investor, the key to understanding tax provisions relies on how updated you are about the latest developments in the market. You may want to stay abreast with what’s changing when it comes to healthcare policies and brush up on the latest reforms and also keep your ears glued to the expert forecasts to give you a clear roadmap.
Once you know your way around tax provisions related to insurance, you’ll surely be able to claim the maximum tax benefits out of it – so to answer the question that this blog post poses, yes, Insurance can help you save on tax, provided you know how your way around it.
Additional Reading: How EPF Helps You Save On Tax
It is also crucial to know the difference between Section 80C and 80D. For instance, the upper limit for deductions is Rs. 1,50,000 under the former while the latter limits deductions to Rs. 65,000. Another difference to note is that Section 80C accommodates a wide range of financial products. Whereas, Section 80D is more specifically related to Health Insurance and health check-ups.
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