Many people invest in insurance with a view to saving taxes. So what are the tax rebates available to an individual in respect of premium paid on life insurance policies? Read on to find out. . .
What are the tax rebates available to an individual in respect of premium paid on life insurance policies?
Life insurance premium paid by an individual qualifies for rebate under Section 88 of Income Tax Act. An individual can claim rebate on premium paid for a maximum of Rs 70,000 in each financial year.
How is tax rebate under Section 88 calculated?
Calculation of tax rebate under Section 88 depends on the individual's gross total income and contribution made towards life insurance premium.
Thus if the gross total income is,
- Less than Rs 150,000, rebate is calculated at 20% of the premium paid towards life insurance.
- Greater than Rs 150,000 but less than Rs 500,000, rebate is computed at 15% of the premium paid.
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Greater than Rs 500,000, the individual is not eligible to claim any tax benefits on the life insurance premium paid.
Are maturity proceeds on life insurance and pension policies taxable?
The maturity proceeds of life insurance policies are not taxable. However under pension plans, any amount received on surrender of the plan shall be deemed to be the assessee's income and taxed accordingly.
Can a tax rebate be claimed if the premium is paid by an individual on his/her spouse's policy?
An individual can make payment on his/her spouse's policy and the premium paid will qualify for rebate under Section 88.
What are the tax benefits available under pension plans?
Under Section 80CCC, where an assesse has paid/deposited any amount towards any annuity plan for receiving pension fund, he/she will be allowed deduction up to Rs 10,000 from the total income. Where the amount paid/deposited has been taken into consideration for the purpose of claiming deduction, a rebate with reference to such amount shall not be allowed under Section 88.
If a person discontinues paying premium on his life insurance or a pension policy, does he get tax rebate?
If a person stops paying premium amounts on his/her life insurance policy, it amounts to discontinuation of the policy; hence he is not entitled to claim any tax benefits.
If a tax payer discontinues the life insurance policy before premiums have been paid for a period of 2 years from the commencement of the policy, no tax deduction is allowed in respect of any premium paid on that policy in the year in which the policy is terminated.
Further the amount of tax deduction allowed for the premium paid in the preceding year is also treated as the tax payable for the year in which the policy is terminated.
If a person participating in a Unit Linked Insurance Plan (ULIP) terminates his policy, can he claim any rebate on the same?
If a person participates in a Unit Linked Insurance Plan (ULIP) and then terminates his participation, he will not be entitled to claim any rebate.
Is the amount received on maturity of UTI ULIP scheme taxable?
No, the maturity proceeds of UTI ULIP scheme are exempt from tax under Section 10(33), subject to the same being received on or after April 1, 2002.
What are the deductions available in respect of medical insurance premium?
The premium paid under medical insurance premium qualifies for rebate under Section 80D as follows:
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Insurance premium paid or Rs 10,000 whichever is lower.
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The aforesaid limit is Rs 15,000, where the individual or his spouse or dependant parents or any member of the family (from whom such premium is being paid) is a senior citizen (i.e. one who is resident in India and who is at least 65 years of age at any time during the previous year).
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