Tax Benefits Under Money Back Plans in India

A money-back policy, as the name implies, pays out money at regular periods. A proportion of the sum assured is paid to the life assured at regular intervals during the plan's term. Survival Benefits are reimbursable cash payments. These benefits are paid over the plan's term, and the remaining Sum Assured is paid at maturity, together with any vested bonuses.

If the life assured dies within the plan's term, the whole Sum Assured is paid, regardless of whether or not Survival Benefits have been paid. This is what distinguishes the strategy. Policyholders who pay their money-back premiums regularly may be eligible for a tax break.

Tax Benefits

Now let's look at the different sections of the Income Tax Act, of 1961.

• Section 80C

Section 80C of the Income Tax Act of 1961 defines the benefits of these schemes. In addition, the monthly investment plans' maturity benefit, survivor benefit, and bonuses are all tax-free. A reduction of Rs. 1,50,000 can be claimed under the 80c tax deduction. To put it simply, the total amount that can be reduced from the tax that you must pay is Rs. 1,50,000 under section 80C.

An individual or an HFU is allowed to avail of this benefit. The maximum amount that can be claimed through this section is Rs 1,50,000 for 2018-19, 2017-18, and 2016-17 each. However, if you miss getting the deduction of the taxes after you’ve paid excess taxes, but you have invested in PPF, Mediclaim, suffer from tuition fees, etc, an Income Tax Return can be filed to claim deductions. 

• Section 80D

This section provides for Medical Insurance Premium Paid Deduction. An individual or an HFU is allowed to avail of this deduction under 80D. The maximum deduction is Rs 25,000, You can claim this for your health insurance of yourself, your partner, and the children depending on you. If they are younger than 60 years old, an additional deduction of Rs 25,000. If the parents are older than 60 years old, the additional deduction is Rs 50,000. The maximum deduction is Rs 1,00,000 if the taxpayer’s and parent’s age is older than 60 years old. 

• Section 10(10D)

Section 10(10D) of the Income Tax Act,1961 says that the amount of sum guaranteed plus any bonus paid or the surrender of policy or on the death of the life assured is completely tax-free for the receiver subject to certain conditions.

So, the policy will be taxable in the hands of the guaranteed person only in the following situations:

Under section 10(10D) in the case of a life insurance policy that has been issued after 1.4.2003 but on or before 31.3.2012 and if the premium which is payable in any year exceeds 20% of the actual sum guaranteed, then the policy proceeds would be taxable in the hands of the insured.

A few points to remember about 10(10D) are:

• The amount that the life assured will be subjected to TDS if the maturity benefit they receive under the insurance policy does not qualify for tax deduction under section 10(10D).
• If the life assured did not provide their PAN card, 20% TDS is applied to their maturity benefit and 2% if the PAN card is submitted.
• If it is an employer-sponsored group life insurance scheme, the benefit is not received by the life insured.

Conclusion

Three main sections are available for tax benefits under the Income Tax Act, of 1961. The 80C, 80D, and 10(10D) are the sections available. Under 80C, the maximum deduction is Rs 1,50,000. The general deduction under 80D is Rs 25,000. If they are younger than 60 years old, the additional deduction is Rs 25,000. If they are older than 60 years, the deduction is Rs 50,000.

If the taxpayer and the parent are older than 60, the deduction is Rs 1,00,000. In 10(10D), if the life assured fails to provide a PAN card, 20% TDS can be applied. If the PAN card is provided, the percentage that can be applied under TDS is 2%. 

Also Read:

Significant Components of A Money Back Plan

Why is Money-Back Considered a Superior Investment Option?

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.