Income Tax Calculator: How Your Life Insurance Policies Are Taxed – Explained

Income tax calculator: Purchasing a life insurance policy is essential to ensure a financially secure life for your family. Although life insurance policies help you claim an exemption from income tax under Section 80C on the premium paid for life cover, there are certain tax implications that an insured should consider. account when purchasing a life insurance plan.

Deduction under Section 80C

Speaking on Section 80C of the Income Tax Act which applies to life insurance, SEBI registered tax and investment expert Jitendra Solanki said: “To claim that the Department of Income Tax allows deduction under Section 80C of the Income Tax Act, the premium paid for a life insurance plan should not exceed 10% of the sum insured for a life insurance policy issued on or after April 1, 2012. For life insurance policies issued before April 1, 2012, this premium limit is 20% of the sum insured.

Income tax rule on proceeds at maturity, bonus

“In accordance with Section 10 (10D) of the Income Tax Act, proceeds at maturity, including premiums received from an ordinary life insurance policy, are fully exempt from tax There is only one catch to benefiting from this waiver and that is the ratio between the premium paid and the sum insured,” said Sujit Bangar, founder of Taxbuddy.com. Sujit Bangar said that if the premium amount exceeds the sum insured limit by 10 or 20%, any sum received from the insurer will be fully taxable.

Income tax rule on ULIPS

“In the case of ULIPS, as pronounced in Budget 2021, the proceeds at maturity would be taxable as a capital gain if the annual premium is greater than 2.5 Lakh,” said Sujit Bangar of Taxbuddy.com.

When you redeem your life insurance

On income tax rules when you choose to surrender your life insurance policy, Shruti Khandare, CMO at MyFundBazaar India said, “After the event, if you choose to surrender your life insurance, the insurer will give you your cash value less any surrender charges for which you will not be taxed. However, you will be taxed on the amount you received less the policy base. This taxable amount reflects the investment gains you have removed.

Taxation on loan against insurance

Shruti Khandare of MyFundBazaar India added that if you have a cash value policy and have taken out a loan against it, the loan is not taxable while the policy is in force. If the policy ends before you have repaid the loan, you will most likely receive a tax bill.

Tax rule on deferred insurance payments

“Insurance payments that are delayed or paid in installments over time by beneficiaries may be taxable, especially when such delayed payments include interest from the life insurer,” said Shruti Khandare of MyFundBazaar India.

Unfortunate scenario in insurance payment

“Another possible unfortunate scenario is when life insurance payouts are tax-exempt but the beneficiary has not been named or is already deceased, in which case it becomes part of the insured person’s estate and may be taxable. with the rest of the estate,” Shruti Khandare said.

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