How Insurance Can Save Your Taxes in F.Y. 2017-18?

Insurance is the best way to the financial security for your family along with tax saving.
Insurance helps in tax saving by way of,

  • Tax-free maturity amount and
  • Tax Deduction on premium paid

As we all know insurance, whether Life Insurance or Medical Insurance, is the most widely used instrument of tax saving. Let’s us discuss how insurance can help you save income taxes.

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Savings taxes with Life Insurance!

As the tagline of LIC says “zindagi k sath bhi, zindagi k baad bhi”

Life insurance helps you discharge your family and social responsibilities through providing good returns on savings. And, it helps protect the life of your dear ones by means of lump sum payment in case of misfortune or loss of life of the insured.

For availing the tax benefits life insurance policy can be taken for

    • Yourself
    • Your spouse
    • Your children
    • Any member of HUF

How much taxes can you save on payment of  Life Insurance Premium?

The government of India understands the value of your life and hence provides deduction under section 80C to the taxpayers who take Life Insurance Policy.

There is no restriction as to the number of policies one person can take or the organization from where it should be taken. But, the maximum deduction that can be availed under section 80C of the Income Tax is Rs. 1,50,000.

This deduction of maximum up to Rs.1,50,000 can be taken on

  • The payment made for new policy or
  • The renewal payments being made regularly for all existing policies

But, while there are certain conditions for claiming the deduction of insurance under section 80C:

  • When The insurance policy, taken on or after 01.04.2012, then Premium paid in any year, should not exceed 10% of capital sum assured on the policy.
  • In case of policies are taken on or after 01.04.2013, in case of disability or severe disability as per section 80U, or suffering from any diseases specified in section 80DDB, the premium should not exceed 15% of Capital sum assured on the policy.
  • No tax benefit will be allowed on late fee or interest paid with renewal premium.
  • Premium actually paid will qualify for the deduction. And, not when the premium becomes due.

Expert’s Tax saving tip on Insurance :

“On fully utilizing the limit of Rs.1,50,000 for the year. And any premium is still due in last months of the financial year, say February or March. You can plan to defer the payment to April and avail the benefit in next year.”

Example:- Mr. Virat paid Life insurance premium as under

Taken new policy this year

Rs.20,000/-

Renewal premiums paid for the current year

Rs.30,000/-

Late fee

Rs. 200/-

Premium due for last year paid now

Rs.10,000/-

Total deduction under section 80C of Income Tax Act available to Mr. Virat will be

20,000+30,000+10,000 = Rs.60,000/-

Since the amount is lower than the prescribed limit of Rs.1,50,000. The complete value of Rs.60,000/-  will be allowed as deduction.

Even Maturity Amount is tax-free!!

The amount received by the beneficiaries after the demise of the policyholder is completely tax-free in their hands.
For instance,

After the demise of Mr. X, say the family received an amount of Rs.10,00,000/-. The complete amount of Rs.10,00,000/- is tax-free in hands of family members.

If Mr. X receives the amount himself, on completion of policy. The value received shall be tax-free under section 10(10D).  The benefit of tax exemption can be taken provided,

  • The insurance policy took on or after 01.04.2012 –  premium payable in any year, shall not exceed 10% of Capital sum assured on the policy.
  • For policies taken before the above mentioned period but after 01.04.2003 the prescribed limit was 20%
  • In case of policies are taken on or after 01.04.2013, in case of disability or severe disability as per section 80U, or suffering from diseases specified in section 80DDB, not more than 15% shall be the amount of premium payable during the period.

Guess what?? No TDS on maturity amount too!!

The policies, maturity amount of which is not exempt under section 10(10D) or exceeds Rs.1,00,000/-, shall attract TDS as per section 194DA at 1% (2% up to 31.05.2016) on maturity. The rate of shall stand enhanced to 20% in case of non-furnishing of PAN by the beneficiary.

Conclusion:-

The maturity amount is free from levy of TDS if

  • The amount is exempt under section 10(10D)
  • The amount received is less than Rs.1,00,000/-

Savings taxes with Health Insurance !!

You can also avail deduction under section 80D if you have a medical Insurance policy. Medical Insurance policy should be in the name of

  • Yourself,
  • Spouse,
  • Dependent children,
  • Parents

How much taxes can you save on payment of Health Insurance Premium?

Section 80D of The Income Tax Act 1961 covers the Deductions for payment of health insurance. The limit for the deduction is as under :

Category

Amount of Tax Deduction(Rs.)

If policyholder or spouse or dependent children are not more than 60 years old i.e.
Not senior citizen

Rs.25,000/-

If anyone of the policyholder or spouse is more than 60 years old i.e.
Senior citizen

Rs.30,000/-

(Rs.50,000/-*this limit has been enhanced from Rs.30,000 to Rs.50,000 by Budget 2018 applicable for F.Y.2018-19)

If parent is not more than 60 years old i.e.
Not senior citizen

Rs.25,000/-

If either of the parents is more than 60 years old i.e.
Senior citizen

Rs.30,000/-

(Rs.50,000/-*this limit has been enhanced from Rs.30,000 to Rs.50,000 by Budget 2018 applicable for F.Y.2018-19)

Also, there is a limit of Rs. 5,000 for the preventive health checkup. But, this limit of Rs.5,000 is a part of Rs. 25,000 / 30,000 / 50,000 limits specified above.

For F.Y 2017-18(AY 2018-19)The maximum tax deduction that you can get under this section is Rs. 60,000. i.e. you can avail tax benefit for self or spouse or dependent children being senior citizen maximum upto Rs.30,000 and for your parents aged above 60 years for another Rs.30,000.

Post Budget 2018 i.e. for F.Y. 2018-19.The maximum tax deduction that you can get under this section is Rs. 1,00,000. I.e. you can avail tax benefit for self or spouse or dependent children being senior citizen maximum upto Rs.50,000 and for your parents aged above 60 years for another Rs.50,000.

For example, Virat who is 44 years old paid the medical insurance premium of Rs. 27,000 on his medical policy and Rs. 70,000 on his father’s medical policy who is 65 years old during the year. In this case, the maximum deduction that Virat can avail under this section for the financial year 2018-19 is Rs. 75,000. (25,000+50,000)

Experts Tax Saving Tip on Life Insurance Premiums:-

In case your limit of Rs.1,50,000 under section 80C had already been exhausted. Smile again, it’s time to save taxes together-with your family!!

Under 80C, the Life Insurance premium paid for your children is allowed, irrespective of their married status and earning capacity. On the other hand, medical insurance policy gives you the tax benefit for paying to your child’s policy only if, that child is dependent on you.
So, plan your family taxes well.

We advise you to definitely invest in both Life Insurance Policy and Medical Insurance Policy as taking these two policies have dual benefits. But, never adopt the prevailing practice of substituting insurances as a mere way to invest. As insurances are for a greater purpose and should be valued for their substance of providing security to lives.
If you have any doubt, feel free to contact us. Till then have a good time saving your taxes!

Abhishek Soni

By Abhishek Soni

Abhishek Soni is a Chartered Accountant by profession & entrepreneur by passion. He is the co-founder & CEO of Tax2Win.in. Tax2win is amongst the top 25 emerging startups of Asia and authorized ERI by the Income Tax Department. In the past, he worked in EY and comes with wide industry experience from telecom, retail to manufacturing to entertainment where he has handled various national and international assignments.

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