Insurance and Tax all on a Single Sheet

The union budget announced new deduction for people buying insurance. If you are confused about what deductions you are eligible for. Here is cheat sheet on that deductions you can claim.

 Life Insurance Premiums:

Deductions ae available under Section 80 C of the Income Tax Act up to a maximum of Rs. 150,000. Premiums can be paid on policies held by you on yourself, your spouse or your children. No exemption is available on any premiums paid by you on policies held by your parents or in-laws or any other relatives. The amount of premiums, subject to this limit, is deducted from total income to arrive at the taxable income.

Life Insurance policies can be divided into 4 categories for tax purposes.

Policies purchased BEFORE 1^st April 2012 where Premium is LESS than 20% of Sum Assured: Tax Rebate available under Sec 80 C up to a maximum of Rs. 150,000 per annum. Maturity or surrender proceeds exempt from tax under Sec 10 (10) (D). A Death Claim is completely exempt from tax.

Policies purchased BEFORE 1^st April 2012 where Premium is MORE than 20% of Sum Assured: Tax Rebate available under Sec 80 C up to a maximum of Rs. 150,000 per annum up to the portion of premium that falls within 20% of the Sum Assured. Maturity or surrender proceeds NOT exempt from tax under Sec 10 (10) (D). TDS @2% will be deducted by the Insurance Company at the time of maturity claim payout, enabling tax trail for the Income Tax authorities. A Death Claim is completely exempt from tax.

Policies purchased AFTER 1^st April 2012 where Premium is LESS than 10% of Sum Assured: Tax Rebate available under Sec 80 C up to a maximum of Rs. 150,000 per annum. Maturity or surrender proceeds exempt from tax under Sec 10 (10) (D). A Death Claim is completely exempt from tax.

Policies purchased AFTER 1^st April 2012 where Premium is MORE than 10% of Sum Assured: Tax Rebate available under Sec 80 C up to a maximum of Rs. 150,000 per annum up to the portion of premium that falls within 20% of the Sum Assured. Maturity or surrender proceeds NOT exempt from tax under Sec 10 (10) (D). TDS @2% will be deducted by the Insurance Company at the time of maturity claim payout enabling tax trail for the Income Tax authorities. A Death Claim is completely exempt from tax.

Notes:

1.  The provision on tax liability under Sec 10 (10) (D) will not be applicable in cases where the proceeds from a life policy in a year are less than Rs. 1 lakh.
2. Maturity proceeds include any sum allocated by way of bonus.
3.  Where PAN card details are not available, the deduction shall be 20 percent. 
4. Policy loan is not a benefit. It's a repayable obligation. Hence it is not taxable.

Annuity Policies:

Premiums paid to keep in force a contract for annuity plans are eligible for a tax rebate under Sec 80 C and its sub-sections within the same cumulative limit of Rs. 150,000. Any amounts paid out as annuity is subject to tax as per your then income tax slab.

Health Insurance:

Tax exemptions on health insurance premiums are simpler in structure. Premiums up to Rs 25000 per annum are exempt from tax under Sec 80 D.  Premiums can be paid for policies covering self, spouse, dependant parents or dependant children. For Senior citizens, the limit is now Rs.30000. Senior citizens are defined as those who have attained an age of 60 years. The table below will explain these limits.

Item	Rs. Premiums Paid Eligible for Exemption under Section 80 D		Rs. Maximum Deduction Possible under Section 80 D
	Self, Spouse, Dependant Children	Parents (Need Not be Dependant)
All Below Age 60	25000	25000	50000
Purchaser and Family Less than age 60 but Parents are above age 60	25000	30000	55000
Purchaser and his parents are above age 60	30000	30000	60000

Notes:

1. The limits mentioned above for Health Insurance is proposed in the budget presented on 28^th February 2015 and will apply from FY 2015-16 onwards. The current limit is Rs. 15000. For senior citizens the current limit is Rs. 20000.
2. Premiums paid for parents-in-law are not eligible for tax exemption.
3. Premiums must be paid by cheque/net banking. Cash payments are not eligible for exemption.

Home Insurance: There is no exemption available on any premiums paid towards home insurance.

Group Insurance: Premiums paid by your employer on your behalf for group health insurance for you and your family is tax exempt.

Service Tax: Before we conclude, one additional point is to be remembered. It is proposed to raise Service tax 12.36% to 14%. This will impact all premiums that are paid.