Sunday, November 29, 2009

TAX BENEFIT ON LIFE INSURANCE PREMIUM -FAQ


on Sunday, November 29, 2009

Question - 1: Is there any Tax Benefit on the premium I pay for my life insurance policy?

Answer - 1: Rebate is available under Section 80C of Income Tax Act, 1961. For the financial year 2009-10, the basic income tax exemption limit has been raised from Rs1,50,000 to Rs1,60,000. The exemption for women asseesees has been raised from Rs1,80,000 to Rs1,90,000, and for senior citizens it's raised from Rs2,25,000 to Rs2,40,000.

Question - 2: What are the Tax Benefits in case I opt for a Pension Plan?

Answer - 2: Under Section 80CCC, where you have paid premiums for any pension plan, you will receive pension from a fund referred to in Section 10(23AAB). You will be able to avail a deduction of up to Rs 100,000 from the total income.

Question - 3: After the maturity of my policies, will the maturity proceeds be taxable?

Answer - 3: Please note that the maturity proceeds of life insurance policies are not taxable. Under pension plans, you can even withdraw up to one-third of the total maturity amount in cash and the same would be tax-free.

Question - 4: If I pay the premium on policy for my wife/husband, can I claim Tax benefits?

Answer - 4: Life insurance premium paid by you for your wife/husband's policy qualifies for a deduction under Section 80C of the Income Tax Act, 1961. For financial year 2009-10, an assessee, being an individual or Hindu Undivided family (HUF) are entitled to additional relief under Section 80D.



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Question - 5: If I stop paying premiums on my life insurance or pension policies, can I claim Tax Benefits?

Answer - 5: If you stop premium payments of your policy, it amounts to discontinuation of the policy and qualifies for Income Tax. In this case you cannot claim any tax benefits. In case you discontinue your premiums after paying for 2 years from commencement of your policy, no tax deduction is allowed on premium paid in the year when policy terminates. The amount of tax deduction allowed on the premium paid in the preceding year, is also taxable in the year when policy terminates.

Question - 6: If I purchase a Unit Linked Insurance Plan (ULIP) and I choose to discontinue my policy, can I claim any tax benefits?

Answer - 6: If you chose to discontinue a Unit Linked Insurance Plan before paying for 5 years from commencement of policy, you are not entitled to any tax benefits.

Question - 7: What are the Tax benefits available on medical insurance premiums?

Answer - 7: In computing the total income of an individual or HUF, any sum paid by any mode other than cash out of his income chargeable to tax (i) to effect or to keep in force an insurance on the health of the individual, his or her spouse or dependant children or member of HUF, and (ii) to effect or to keep in force an insurance on the health of the parent or parents of the individual upto Rs.15,000 each of (i) and (ii) in the previous year and in case the person is a senior citizen upto Rs.20,000 each of (i) and (ii) in the previous year shall be allowed on a deduction.

Question - 8: Can I claim tax benefit on interest on loan taken against insurance policy for purchase/construction of house?.

Answer - 8: Interest on loans taken against an insurance policy is allowed as a deduction from income chargeable under the head “Income from house property” provided the amount of loan is used by the policyholder to acquire/construct /reconstruct/repair or renew any property

Question - 9: Is Service Tax applicable on ULIP products?

Answer - 9: "Service tax is applicable, on the risk cover & fund related charges towards management of investments of Unit Linked Insurance Products included in life insurance premium in accordance with Section 65(105)(zx) of Finance Act 1994, as amended by Finance (No.2) Act 2004 and Section 65(105)(zzzzf) of Finance Act 2008 (inserted w.e.f. May 16,2008) respectively, at the applicable rates and the same would get deducted by way of cancellation of units. The risk cover includes charges towards mortality/morbidity while the fund related charges shall include premium allocation, policy administration, fund management, switching, partial withdrawal and redirection charges which are levied for services provided by the insurer to the policyholder in relation to management of investments under unit linked insurance business."

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