There are a lot of life insurance companies that offer hundreds of plans for people of all ages and needs. These plans can assist you in paying taxes under different parts of the Income Tax Act of 1961. If you are the only one who can support your family, you need to get life insurance.
You are responsible for ensuring your partner, parents, and children have enough money to live on. However, it would help to consider how buying life insurance will affect your taxes when deciding. The Income Tax Act has tax breaks for people who buy life insurance under Sections 80C and 10D. Most of the tax benefits of life insurance come from deductions and exclusions.
What Is Section 80C?
Part 80C of the Income Tax Act 1961 lets you lower your taxed income by the amount you pay for life insurance for yourself, your spouse, or your children. You can get a reduction of up to $1800. You can take the exemption under Section 80C whether your child is dependent or not, young or old, married or single.
Many must learn if this benefit is only for life insurance plans bought through LIC. That’s not true. A Section 80C credit can be taken for life insurance payments paid to any insurer. Some things to keep in mind about the Section 80C tax deductions:
- This tax break is only available to people and Hindu Undivided Families (HUF).
- Sections 80C, 80CC, and 80CCE let you avoid paying taxes up to $1800.
- If the benefit was requested under this part and the insurance is canceled or ended within two years of the start date, the benefit will be removed. This is true for all types of life insurance, except for ULIPs, which have a five-year maximum term.
What Is Section 10(10D)?
You must follow the rules in Section 10(10D) of the Tax Act of 1961 for the money you get from life insurance plans not to be taxed. Section 10(10D) of the Income Tax Act, 196 says that the sum guaranteed amount plus any bonuses given when the insurance is surrendered, matures, or the covered person dies are not taxed by the person who receives them.
Section 10(10D) deductions apply to gains and profits from ULIPs. The benefit on maturity earnings is given when the fee paid for the insurance is less than 10% of the insured sum. If the maturity profits hit $1200, a tax deduction at source (TDS) will be needed to stay in line with the law. The insurance will take 1% as TDS if the policyholder’s PAN is available.
However, the insurance profits will be taxed and cannot be deducted in the following cases.
- Payments from an annuity or a pension plan.
- Group health insurance plans that companies back
As you can see, these rules don’t affect death payments or any money given after the life covered has died. There is no top limit on the most significant reduction that can be taken under Section 10(10D).
As per Section 80C of the Income Tax Act, investments that can be deducted;
Not only can you subtract the cost of your life insurance premiums, but you can also deduct the cost of your Equity Linked Saving Scheme (ELSS), National Pension Scheme (NPS), Unit Linked Insurance Plan (ULIP), Public Provident Fund (PPF), Sukanya Samriddhi Yojana (SSY), National Savings Certificate (NSC), Fixed Deposit (FD), Employee Provident Fund (EPF), and other plans.
Things you should keep in mind when using section 80C and 10D tax breaks;
For life insurance plans bought after March 31, 2012, the maximum payment each year during the policy’s term is 10% of the sum guaranteed. For life insurance policies purchased between April 1, 2003, and March 31, 2012, the maximum premium could be 20% of the sum guaranteed.
Also, payments paid on insurance bought after April 1, 2013, that cover the lives of people with disabilities or diseases named under Sections 80U and 80DDB are not taxed as long as they don’t go over 15% of the sum guaranteed.
Conclusion
The above information comes from the Income Tax Act of 1961. Tax rules can change, though. Please read the most up-to-date information on tax-saving techniques in the parts above before making any financial choices. Ask your insurance company about the tax savings choices in each part of your coverage before you sign it.
You can get tax breaks under sections 80C and 10(D) of the Tax Act (ITA), 1961, if you buy the life insurance policy you think is best for you. It will protect you and give you stability. Many life insurance plans from different companies can help you lower your tax responsibilities under the ITA, 1961.
