Sunday, March 10, 2013

Life Insurance premium under section 80C on who's name


on Sunday, March 10, 2013

Life Insurance policy is most used option of tax saving under section 80C of the Income Tax Act .But how much we know about life insurance policy and section 80C. to check this we have asked a tricky question on Simple Tax India Face Page regarding who's name life insurance policy can be taken to claim deduction under section 80C. The question was as under

"Whether life insurance premium paid on the life of following is eligible u/s 80C ?" 

options were(Participants were supposed to select multiple option)


  1. Dependent Father/Mother.
  2. Dependent Brother /Sister.
  3. Spouse (wife/Husband)
  4. Minor Son/Daughter.
  5. Major Son (Income more than 2 Lakh)
  6. Major Dependent Children.
  7. Married Daughter. 
Quiz result : Most of person failed to get the correct answer due to unnecessary details provided in option ,which has created confusion .Akhil Poddar get the right options.

Before going in to the details ,please select your options and check your understanding with the income tax tax provisions ? 

Relevant provision of Income tax : Provision are very precise,compact and simple and without any confusion  and given  below.
(a) for the purposes of clauses (i), (v), (x) and (xi) of that sub-section,—
    (i) in the case of an individual, the individual, the wife or husband and any child of such individual, and
       (ii) in the case of a Hindu undivided family, any member thereof;
So Individual can pay life insurance premium on the policy of  following

  1. On himself
  2. On Wife/husband(dependent or not)
  3. Child 
    1. Major or minor
    2. Earning any income or dependent
    3. Married or unmarried  
Though the act is very much clear yet to clarify the issue department has also issued circular on one of the aspect of the issue in the past.
Premium paid on policies in name of adult children - Relief under section 80C is available in respect of premia paid on the life insurance policies on the lives of adult children, irrespective of their status; for example, premia paid on a policy on the life of a married daughter. This relief will continue to be available under the new section (section 88) introduced by the Finance Act, 1990, as the language of the new section is in pari materiawith that of section 80C of the Act—Circular : No. 574, dated 22-8-1990.
However you can not claim deduction on life insurance policy taken on the life of
  1. Parents (mother or father)(dependent or not )
  2. Brother or Sister (dependent or not)
Same Rule applicable on three other investment types:"For the purposes of clauses (i), (v), (x) and (xi) of that sub-section"(given with yellow background above) It means that the same rule is applicable on four type of investment .

  • (i) Life insurance premium as stated above 
  • (v) Public Provident Fund 
  • (x) UTI Unit linked insurance Plan 1971(as a contribution, in the name of any person specified in sub-section (4), for participation in the Unit-linked Insurance Plan, 1971 (hereafter in this section referred to as the Unit-linked Insurance Plan) specified in Schedule II of the Unit Trust of India (Transfer of Undertaking and Repeal) Act, 2002 (58 of 2002)
  • (xi) as a contribution in the name of any person specified in sub-section (4) for participation in any such unit-linked insurance plan of the LIC Mutual Fund referred to in clause (23D) of section 10, as the Central Government may, by notification in the Official Gazette, specify in this behalf

Correct answer :is  (3) Spouse (wife/Husband),(4) Minor Son/Daughter.,(5) Major Son (Income more than 2 Lakh) ,(6) Major Dependent Children.,(7).Married Daughter.

Also Read Who's name Saving can be done under section 80C 
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  1. Suppose :policy is taken by wife and two yearly premiums paid by her and this year I have paid the premium ,whether I am eligible to claim the deduction.

    Similar query for PPF , suppose wife opened a account , deposited amount in PPF for last few years and this year I have deposited the amount in her account. whether I can claim deduction.

    ReplyDelete
    Replies
    1. You can claim deduction even in above situations also.

      In second case I just want to ask you , why are you not investing in your own account to claim the deduction under section 80C ?

      Yes , you can contribute in wife's account.

      Delete
  2. Saroj Kumar AgrawalMarch 11, 2013 at 6:12 PM

    Wonderful Mr. Raju !!,

    I am seventy years old person. I have one male child who is a major. I also have a male minor grandson. Both of them, son and grandson,have PPF accounts in their respective names.

    My wealth is distributed in various tax saving instruments with varying lock-in period. As a preparatory step for the D-day, not having much faith in process and system of a Public Sector Bank, I have closed down my PPF account and gifted the proceeds to my major son. For the past year I did not claim 80C benefit.

    As per this article of yours, I can deposit PPF subscription for my major son AND my major son can pay PPF subscription for his son (my grandson). By this scheme, I can claim 80C benefit and also my son can claim 80C benefit.

    You have already said this is workable. However, I will be thankful if you can affirm it once again.

    ReplyDelete
    Replies
    1. yes , you can do this .

      But you should keep investment in your name also , all money should not be divided .

      Delete
  3. That is truly exceptionally instructive article i have never perused such sort of fascinating and supportive informative content about protection heretofore. Trust you will upgrade us structure such sort of informative data in destiny.

    ReplyDelete