Insurance should be an integral part of personal financial planning. Apart from providing a financial cushion to your family, insurance can also play an important role in saving your taxes.
Insurance can be of many types, but the term is generally used to address life and health insurance. A life insurance policy can provide financial protection to the policyholder and his family. In contrast, health insurance can ensure that policyholders do not need to worry about arranging funds when facing a medical emergency.
Apart from the usual benefits, insurance can also help you save on taxes. If you choose to file your income tax return under the old tax regime, you can claim various tax exemptions under different sections of the Income Tax Act.
Various Sections to Claim Tax Deductions on Insurance
This is the most common section used for tax exemption, where you can claim a tax deduction of up to Rs 1.5 lakhs on the premium paid toward a life insurance policy for yourself, your spouse, or your children. A member of the Hindu Undivided Family (HUF) can also claim tax deduction under this section.
The amount paid towards purchasing an annuity plan of a life insurance policy can be claimed for tax deduction under section 80CCC. The tax deduction limit is Rs 1.5 lakhs for a financial year.
Note: A total tax deduction of Rs 1.5 lakhs is allowed under Section 80C and 80CCC combined. You can’t separately claim tax deductions worth Rs 1.5 lakhs against each of these sections.
A life insurance policy can pay a lump sum to the policyholder or his dependents in the following scenarios.
- Surrender of the policy by the policyholder.
- Payment of sum assured and bonus on maturity as survival benefit.
- Payment of lump-sum amount as death benefits to the nominee of the deceased policyholder.
Under section 10 (10D), the entire amount received in any of the above scenarios is entirely tax-free for the receiver.
Under this section, you can claim tax deductions on your health insurance. You can claim a tax deduction of up to Rs 25,000 for the health insurance premium paid for yourself, your spouse, and your children.
Additionally, you can also claim the following tax deductions for the health insurance premium paid for your parents:
- Rs 25,000 if the parents are 60 years old or less.
- Rs 50,000 if the parents are above the age of 60 years.
While you should be aware of the aforementioned tax deductions for insurance, you should refrain from buying insurance exclusively for tax planning. Instead, choose an insurance plan that best suits your needs and provide complete protection to your family. The tax advantages on insurance are only an additional benefit.