TAX LAW IMPLICATIONS IN LIFE INSURANCE:
Historically life insurance in India has been driven mainly by benefits doled out under the Income Tax Act, 1961. Different sections under the Income Tax Act, 1961 deal with benefits at the purchase, renewal and claim stages of a life insurance policy. Life insurance policies have been used as effective tax planning tools. Following are some of the sections under the Income Tax Act, 1961 dealing with tax benefits for life insurance policies:
Deductions under Sections 80C/80CCC/80D:
Under Section 80C of the Act, premiums paid by the Assessee on policies held by himself, spouse or children is eligible for deduction from gross total income. This is also applicable to a Hindu Undivided Family (HUF) where the Karta of the HUF pays premiums on policies held by any member of the HUF. Where the premiums payable under the policy exceeds 10% of the actual capital sum assured, the deduction is limited to 10% of the sum assured.
Section 80CCC deals with contributions to approved pension products. It lays down that an individual assessee who has paid premiums out of his income chargeable to tax to effect or keep in force a contract for any annuity plan of Life Insurance Corporation of India or any other insurer for receiving pension from the fund approved under Section 10 (23AAB), he shall be allowed a deduction in the computation of his total income, of the whole of the amount paid or deposited (excluding interest or bonus accrued or credited to the assessee’s account, if any) upto a maximum of Rs.10000/- in the previous year.
However any amount received under the policy by the assessee either by way of surrender of the policy or pension from the annuity plan, such amount shall be treated as income chargeable to tax during the year of receipt.
Section 80CCD deals with contributions to approved pension products by an individual assessee. It lays down that where an assessee, being an individual has in the previous year paid or deposited any amount in his account under a notified pension scheme, he shall be allowed a deduction in the computation of his total income, of the whole of the amount so paid or deposited as does not exceed 10% of his salary (in case of Central Government employees) or 10% of his gross total income (in any other case) in the previous year.
However any amount received under the policy by the assessee either by way of surrender of the policy or pension from the annuity plan, such amount shall be treated as income chargeable to tax during the year of receipt.