Check Tax-deductions on Life and Health Insurance Premiums
Updated On Feb 07, 2024
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There are separate tax laws under the Income Tax Act for both life insurance and health insurance. For a person who lacks knowledge regarding these matters, it can be quite hard to interpret tax provisions and make the correct claim at the time of filing for income tax returns. Therefore, read on to avoid any confusion regarding tax deductions for health and life insurance.
Tax Benefits on Insurance
An individual can claim tax deductions under section 80C on the payment of premiums towards the life insurance plan. On the other hand, tax deductions can be claimed under section 80D of the Income Tax Act for the payment of premiums towards health insurance plans.
Tax Exemption Under Life Insurance
Under section 80C of the Income Tax Act, the primary conditions, to claim tax exemption under life insurance premium, are as follows:
- Tax deductions can be claimed only by an individual or a member of a Hindu Undivided Family (HUF). An individual can either be a resident or non-resident.
- The maximum deduction amount available under this section along with the life insurance premium is Rs 1,50,000 for a year.
- A person can buy a life insurance plan for themselves or their spouse and children.
- The life insurance plan can either be traditional, pure term insurance, or a ULIP plan.
- When it comes to ULIP and traditional life insurance plans, the tax exemption claim will get reversed in case the insured surrenders the insurance plan before 5 years and 2 years respectively.
Tax Exemption Under Health Insurance
Tax deduction under section 80D of the Income Tax Act on health insurance can be claimed just by an individual or HUF( Hindu undivided Family). Other conditions are mentioned below:
- Only critical illness and mediclaim plans are eligible for tax exemption under section 80D. Payment of premiums towards personal accident plans is not eligible for tax deductions.
- Premiums paid towards Central Government Health Schemes, preventive health check-ups along with health insurance plans are eligible for tax deductions.
- Payment of premium towards health insurance can be done for self, spouse, and dependent children or parents (whether they are dependent or not dependent).
- Premium payment should be done in any other mode except for cash to qualify for tax deductions. However, premium payments towards preventive health check-ups can be made in cash.
Section 80C V/S Section 80D
The key differences between sections 80C and 80D have been highlighted below:
| Category | Life Insurance (Section 80C) | Health Insurance (Section 80D) |
| Coverage given to parents | No cover provided | Cover provided |
| Coverage given to children | Coverage offered( dependent or not) | Coverage offered( if dependent) |
| Maximum deduction limit | Rs. 1,50,000 | Rs 25,000( addition Rs. 5,000 if senior citizen) |
| Mode of payment | Any mode | Payment of premium except for cash |
| Deduction Reversal | Yes, if you surrender the plan | No such provision |
| Availability of deduction on a payment basis | No such provision | Yes |
Conclusion
At the time of claiming for tax or filing for returns, it is highly significant to know the available provisions. Claiming for higher deductions than what has been permitted, even though by mistake, can make you pay additional interests, penalties, and taxes. Also, as tax exemptions are dynamic, one must keep oneself updated regarding all the amendments introduced in the income tax every year.
Disclaimer: This article is issued in the general public interest and is meant for general information purposes only. Readers are advised not to rely on the contents of the article as conclusive and should research further or consult an expert in this regard.
