- How much taxes can you save on life and health insurance ?
- Know tax exemptions on insurance products under different sections of IT Act
Everybody needs insurance at one point or another in their lives to keep things secure. There are several kinds of insurance products that many individuals opt for such as Health Insurance, Life Insurance, Vehicle Insurance, etc. But do you know that an insurance policy can help you in availing exemptions of Tax Deducted at Source (TDS)?
There are several individuals who utilize these insurance products as excellent tax planning instruments. It is always advised to have insurance policies in your financial portfolio to make it more structured and solid.
But there are a lot of misconceptions about the tax benefits that an individual can enjoy through different insurance policies. A lot of people face difficulty when they try to understand the exact tax benefits on a range of different insurance products. To make it easier and understandable for you, in this article, we will tell you everything about the TDS on Insurance Products. So, if you are someone who is confused about the overall procedure of TDS and how it works on different insurance products, this article will help you know the same. So, without any further delay, keep reading!
What is TDS?
Before knowing about the TDS on several insurance products, it is important to know about what exactly is TDS? Abbreviated from the Tax Deducted at Source, it is nothing but a system introduced by the Income Tax of India to collect the tax at the very source where the income of an individual has been generated. The amount remaining after deduction will be given to the individual. TDS applies to several kinds of incomes such as salaries, interests, professional fees, and commissions.
The person or entity who is liable to deduct the tax is known as the Deductor and the individual who receives payment after the deduction is known as the Deductee. The deductor will submit the deducted amount to the central government.
TDS On Life Insurance Policy
An individual buys a life insurance policy to ensure protection to his/her dependents in case anything unexpected happens in his/her life. A life insurance policy provides the required financial coverage to the individual’s family in the eventuality of the policyholder’s demise. Apart from this, if you have a life insurance policy in your name, you can enjoy certain tax benefits under various sections of the Income Tax Act 1961. There is one thing that you need to remember that TDS is always levied at the full maturity of an income tax policy.
We are providing the details about several deductions and exemptions that you can get on Life Insurance Policies below. You can have a look at them!
Deduction Under Section 80C
- Every premium amount you paid for the safety of your or your spouse and child will be eligible for the deductions under section 80C of the Income Tax Act. The maximum deduction is capped to INR 1.5 lakh a year. It doesn’t matter if your child is dependent on you or not, minor or adult, married or bachelor, you will get the deduction under this section.
- This deduction can be claimed by any individual or Hindu Undivided Family (HUF).
- You also need to remember that this deduction under Section 80C can be claimed on the insurance policy given by any insurance company and not just LIC.
The conditions that you need to follow to claim the deduction under Section 80C are as follows.
- For policies issued After April 1, 2012 – Total Premium Paid should not be more than 10% of the sum assured
- For policies issued Before April 1, 2012 – Total Premium Paid should not be more than 20% of the Sum assured
Under Section 10(10)D of the Income Tax Act, 1961, some life insurance policies are exempted from any kind of tax with the following conditions.
- If the policies were issued on or before April 1, 2012, and an annual premium paid for the policy by the Individual is not more than 10% of the total sum assured for the policy.
- If the Policies were issued after April 1, 2012, and the annual premium paid for the policy by the Individual is not more than 20% of the total sum assured for the policy.
Under Section 80DDB, you can also get tax exemption if your life insurance policy is issued on or before April 1, 2013, and who are suffering from ailments or disabled but the premium paid by you must not exceed the 15% of the actual sum assured.
Remember, if the maturity amount from your life insurance policy is more than INR 1 lakh in a single year, you will not get any income tax exemptions under Section 10(10)D. The maturity amount will be taxable as usual in such a case. TDS on Insurance Products is only deducted on the maturity amount of your policy.
TDS on Single-Premium Insurance Policy
While paying the single premium of your insurance policy, if your premium exceeds the 10% of the total sum assured, then you will not get any tax exemption under Section 10(10)D of the Income Tax Act, 1961.
There are a few things that you need to keep in mind that you should opt for the Life Insurance Policy for a long tenure to make sure that you always have security coverage for you and your family. The sum assured for your policy also must be at least 10 times your annual income. Apart from this, you must attach your PAN details with your policy as it decreases the TDS burden on you.
TDS On Health Insurance Policy
In the past few years, there has been a sharp increase in the number of people subscribing to a Health Insurance Scheme for themselves and their families. It is important for an individual to have a health insurance scheme in his/her overall financial plan. Besides helping you with much-needed funds for your medical treatment, health insurance also offers you a slew of tax benefits. We are providing all the tax benefits related to the health insurance scheme below. You can have a look!
Under Section 80D of the Income Tax Act, 1961
- On paying the premium for your insurance schemes in a financial year, you can enjoy tax deductions of upto INR 25,000 in a year. You must remember that the premium must be for you, your spouse, your family, or your children (If any).
- If your parents are below 60 years of age, you can claim additional deductions of INR 25,000
- If your parents are above 60 years of age, the additional deductions can go upto INR 50,000 for the insurance of your parents. The total deductions under Section 80D will then be INR 75,000.
- If you and your parents are above 60 years of age, you can claim deductions of INR 1,00,000 under Section 80D.
- Members of HUF and Non-resident individuals can claim a maximum deduction of INR 25,000.
- For all the preventive health-checkups of your parents in a year, you can get a tax exemption upto INR 5,000. This amount is within the limit of INR 25,000 for individuals and INR 50,000 for senior citizens.
You must remember that you can enjoy all these tax benefits by paying the premium of the health insurance policy through any payment method other than cash, such as cheque, draft, credit cards, debit cards, etc. Only preventive health checkups can be paid in cash.
Deduction under Section 80D for Single-Premium Insurance Policies
If a taxpayer has paid a single premium for the Health Insurance Policy which is valid for more than 1 year, he or she can claim a deduction equal to the suitable part of the amount under Section 80D.
You can find out the suitable part by dividing the total premium amount by the number of years of the policy. You must remember that this amount will again be within the limit of INR 25,000 or INR 50,000 according to the type of individuals paying the premium.