All about the tax benefits offered on life and health insurance

All the tax benefits offered on life and health insurance | Vrid
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No matter how many benefits life & health insurance has, we Indians always want to know the tax benefits cause who likes to pay tax, right?

Let’s discuss all the tax benefits you can claim by purchasing a good life & health insurance.

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Buckle up, here we go!

Having a life insurance policy and health insurance policy today is a must. To increase its demand, the government has allowed tax deductions to be claimed on the premiums you pay for both types of policies.

And before we start, we have to advise you not to choose a life and health insurance policy only for tax benefits. 

There are two types of tax deductions/exemptions offered on a life insurance policy – premiums and maturity payouts + bonus. 

Tax deduction on life insurance premiums

1. Section 80C

If you have a life insurance policy like endowment, whole life, money back policies, term insurance and ULIP. You can claim a tax deduction of up to ₹1.5 lakhs under Section 80C. 

But there is one condition. The premium paid should not exceed 10% of the sum assured in the life insurance policy. 

If you have a policy with ₹10 lakhs sum assured, your annual premium shouldn’t go above ₹1 lakh. If it does, you can claim a deduction of only up to 10% of the sum assured.

Also, remember that the claim limit of ₹1.5 lakhs under Section 80C also includes your EPF, PPF, ELSS, NSC, etc. So plan accordingly.  

2. Section 80CCC

You can claim a tax deduction of up to ₹1.5 lakhs under Section 80CCC for a premium paid towards any annuity plan of life insurance companies to receive a pension. 

Note: This deduction is within the limit of section 80C. That means 80C and 80CCC jointly give you a maximum deduction of ₹1.5 lakhs.

Tax exemption on life insurance claims, maturity payout and bonus

1. Section 10(10D)

Section 10(10D) offers tax exemption on claims, i.e. death and maturity benefit, which includes all forms of accrued bonuses. 

We can avail tax exemption under this section on all types of life insurance policies. There is no upper limit on the claim.

But there are some critical conditions. 

If the annual premium paid exceeds 10% of the sum assured, you cannot make any claims for exemption under this section. 

Also, even though we suggested avoiding ULIP, many of you have already invested in it. Make sure the annual premium paid for ULIP is below ₹2.5 lakhs. If your ULIP’s premium is above ₹2.5 lakhs, you won’t receive any exemptions on the returns and bonus. You have to pay capital gains tax on them.

If you want to know our reasoning behind suggesting avoiding ULIP, read here.

Also, if you need help selecting the best life insurance policy, read here. 

Tax deduction on health insurance premiums

1. Section 80D

Your health insurance premium is tax deductible under Section 80D. That means the amount you pay as a premium for health insurance coverage can be deducted from your taxable income.

The deduction is available on premiums paid for self, family and dependent parents. The family includes your spouse and dependent children.

You can claim a deduction of ₹25,000 under section 80D on insurance for self, spouse, and dependent children. An additional deduction for your parents’ insurance is available up to ₹25,000 if they are less than 60 years of age. 

If the parents’ age is above 60, the deduction amount is ₹50,000. 

In case both you and your parents are 60 years or above, the maximum deduction available under this section is up to ₹1 lakh.

Also, you can claim a tax deduction on preventive health check-ups of up to ₹5,000 per year for you and your parents. For those above 60 years, the limit goes up to ₹7,000. Remember, this deduction is clubbed in the max deduction limit of ₹25,000 and ₹50,000 mentioned above.

Don’t get confused. We have a comprehensive table to understand these deductions.

Tax benefits and deductions available on health insurance | Vrid

Note: You can’t avail of any tax deductions if you pay your health insurance premium in cash. But cash payments for preventive health check-ups are eligible for tax deduction under Section 80D.

And yes, you can claim deductions proportionately if you have purchased a multi-year policy.

Also, if you need help selecting the best health insurance policy, read here.

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Still Curious?

If you are like us, who likes to analyse a little more or check out content in different formats, well you are in luck. Below you can find some suitable content we found.

Cleartax – Income Tax Deductions List – Deductions on Section 80C, 80CCC, 80CCD & 80D – FY 2021-22

TATA AIG – Tax Benefits Of Health Insurance Plans

ET Money – Section 80D Deduction | Health Insurance Tax Benefit

Note: We don’t have any affiliation with them. We are sharing links only for educational purposes. The opinions expressed by them belong solely to them and do not reflect the views of Vrid.

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DISCLAIMER: This newsletter is strictly educational and is not an investment advice or a proposal to buy or sell any assets. Please be careful and do your own research.

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