LIC Tax Exemption

Having life insurance is important for you and your family. It helps ensure financial security at times when a sudden emergency occurs. No one is aware of the future and thus there must be some financial arrangement that could help your family in your absence.

Life insurance is the best option in the case when an individual is looking for an affordable yet effective way to provide financial stability to his family. It is also significant because it helps enjoy tax exemptions. So, if you are looking for tax-saving opportunities, a life insurance policy can be helpful here as well. This is an investment that could save tax.

As per the Income Tax Act 1961, every individual needs to pay tax on his total gross income. There are ways with which you can reduce the total amount on which tax will be calculated. By obtaining tax exemptions, you can also avail of several deductions in total tax to be paid. There are many companies that offer different life insurance plans with different criteria and LIC is one among them.

What are LIC policies?

Life Insurance Corporation of India is actually an Indian statutory corporation that offers insurance and investment services. LIC is managed under the ownership of the Ministry of Finance and the Government of India. It brings in several investment plans and saving options for individuals. LIC policies help secure life financially by offering support to legal spouses and dependent family members. Being a corporation managed by the Government of India, LIC policies offer tax exemptions as well.

LIC tax exemption

There are different sections under the Income Tax Act under which an individual can enjoy tax exemption on the premium paid for the LIC life insurance policy from the taxable income. Some of the sections and their eligible deductions under LIC tax exemption are as below:

1. LIC tax exemption – Deduction for insurance premium paid from taxable income under section 80C:

Premium paid on LIC life insurance can make you eligible for tax exemptions. A taxpayer can obtain tax exemption under section 80C of the Income Tax Act. Any taxpayer can obtain tax exemption on life insurance premium paid only if the insurance company is approved under the Insurance Regulatory and Development Authority of India (IRDAI).

An individual is will be allowed to make a Section 80C deduction, if:

• The premium paid does not exceed 10% of the sum assured. When the policy is issued after April 1, 2012
• The premium paid does not exceed 20% of the sum assured. When the policy is issued prior to April 1, 2012
• The premium paid does not exceed 15% of the sum assured in the case of the life of an individual for disability under section 80 C or disease covered under 80DDB. When the policy is issued after April 1, 2013.

He would qualify for an exemption under this section for the life insurance premium paid for himself, his spouse, and his dependent children.

2. LIC tax exemption – Deduction under section 80CCC for annuity plans

This is a subsection of 80C and is included in the total limit of INR 1.5 lakhs per annum. So, any premium paid towards an annuity plan up to INR 1.5 lakhs a year qualifies under section 80CCC.

So, section 80CCC allows a tax deduction for premium payment for both deferred as well as immediate annuity plans. However, any annuity received, either on surrender, bonus, or interest on the annuity as well as the annuity is taxable in the hands of the annuitant.

LIC tax exemption – Deduction under section 80D:

There are tax deductions a taxpayer can enjoy under section 80D and these are:

1. 1. An individual is allowed to receive a deduction up to INR 25,000 if:
      • He pays an amount to continue health insurance of the individual being assessed or his family
      • He pays for the contribution to the Central Government Health Scheme
      • He contributes to any other scheme notified by the Central Government or is on its behalf
      • He pays for a Preventive health check-up of the individual being assessed or his family.
   2. An individual can enjoy an additional deduction up to INR 25,000 (if they are less than 60 years of age) and INR 50,000 if any of them are more than 60 years, if:
      • He pays an amount to continue the health insurance of his parents
      • He pays for the preventive health check-up of the parent of the individual being assessed (whether dependent or not).
   3. In the case of HUF, an individual can enjoy a deduction of up to INR 25,000 if:
      • He pays an amount to continue the health insurance of any member of the HUF.
   4. An individual can receive a deduction for amounts paid in (a) or (b) or (c) for a preventive health check-up. The allowed exemption must not exceed in aggregate to INR 5,000.

3. LIC tax exemption – Tax deduction under Section 80DD:

An individual is eligible for a deduction of up to INR 75,000 on the amount paid for LIC under certain plans for maintenance of handicapped dependents who are suffering from a critical disability. Any premium paid towards the erstwhile plans of LIC such as Jeevan Aadhar or Jeevan Vishwas qualifies under the same.

1. LIC tax exemption – Under Section 10(10A) (iii) in respect of commutation of pension:An individual is exempted from tax if he receives any payment by way of commutations of pension from LIC Annuity Plans.Under section 10(10A) an annuitant can withdraw 1/3rd of the entire corpus tax-free at the time of vesting. The remaining 2/3rd of the corpus would have to be converted to annuity according to the option chosen. Also, an annuity is taxable in the hands of the annuitant.
2. LIC tax exemption – Under Section 10(10D) on Maturity Claims proceeds:It is possible to receive tax exemption on any sum received under a Life Insurance Policy. This may include the sum allocated by way of a bonus on such policy.The maturity amount of any LIC life insurance plan is tax-free under section 10(10D) provided the sum assured is at least 10 times the annualized premium for the entire policy tenure and the premium had been invested for a minimum of 5 years.
3. LIC tax exemption – Death proceedsDeath proceeds are tax-free in the hands of the nominee/legal heirs irrespective of the amount of the claim.

LIC policies allow tax exemption and are the best way to obtain tax benefits. Above is the list of tax benefits an individual can enjoy on life insurance policies offered by LIC. It is important to compare the list of benefits you could enjoy on life insurance policies so as to reap maximum benefits.