Tax Benefits on Insurance and Pension Contributions

Super tax savers from Bajaj Allianz Life Insurance are effective ways of saving taxes.

Bajaj Allianz Life Insurance Plans provide tax breaks under the current prevailing Income-tax Act, 1961 (‘Act’):

1. Life insurance premium contributions are eligible for deduction under Sec. 80C.

2. Pension plan contributions are eligible for a deduction under Sec. 80CCC.

3. Health insurance plans/riders are eligible for deduction under Sec. 80D.

4. The proceeds or withdrawals of our life insurance policies are exempt under Sec 10(10D), subject to norms prescribed in that section.

Tax Slabs for Individuals

In case where the Total Income exceeds Rs 10,00,000, there would be an additional surcharge @ 10%. Marginal relief is available to assessee whose income just exceeds
Rs. 10,00,000.


Education Cess on Income Tax

Educuation Cess @2% will be payable on the amount of income tax (including surcharge).

Tax Benefits applicable to Life Insurance and Pension Plans

Life Insurance Premiums payable eligible for tax benefits as per Section 80C of the Act

1. Category of assessees allowed deduction : Individual assessee and Hindu Undivided Family assessee.

2. Eligible Deduction: Premiums paid or deposited by assessee to effect or to keep in force insurance on the life of following persons:

- In case of individual assessee - Himself/Herself, spouse, children of such individual
- In case of HUF assessee - any member of HUF

3. 20% limit : If the amount of premium paid in a financial year for a policy is in excess of 20% of the actual capital sum assured, then deduction will be allowed only for premiums upto 20% of the sum assured.

In computing the actual capital sum assured, no account shall be taken for:

1. Value of premiums agreed to be returned; and
   
2. Any benefit by way of bonus or otherwise over and above the sum actually assured, which is to be received or may be received.

4. Limit on amount of deduction : Deduction will be restricted to investments upto
Rs 100,000 per year in savings/ investments specified under Section 80C (including life insurance premiums).

The aggregate amount of combined deduction under section 80C, 80CCC and 80CCD (contribution to pension scheme of Central Government) shall be restricted to Rs 100,000
per year.

5. Discontinuance of insurance policy before 2 years

In case of regular premium policy, if the policy is terminated or surrendered before the premium has been paid for 2 years, no tax deduction is allowed in respect of premium paid in the year in which such policy is terminated or surrendered and tax deduction allowed in the previous years in respect of such premium shall be deemed to the amount of income of the year in which the policy is terminated.

In case of any single premium policy if such policy is surrendered within 2 years of the date of commencement of insurance, the amount of deduction allowed earlier shall be deemed to the income in the year of surrender.

Premiums paid for Pension plans eligible for tax benefits under Section 80CCC of the Act

1. Category of assesses allowed deduction : Individual assessee.

2. Permitted Deduction : Section 80CCC allows for deduction of premiums paid or deposited out of income chargeable to tax to keep in force a contract for annuity plan for receiving  pension from fund..

3. Limit : As per this Section, premiums paid upto Rs 100,000 per year by an individual is allowed as deduction from his total income for that year. 

The aggregate amount of combined deduction under section 80C, 80CCC and 80CCD (contribution to pension scheme of Central Government) shall be restricted to Rs 100,000
per year.






4. Receipt under Policy : Any amount standing to the credit of the individual in the pension fund (including interest and bonus accrued to the credit of the individual) received by the individual or his nominee, under the following circumstances, shall be deemed to taxable income of the individual in the year of receipt/ receipts.

-           Amount received on account of surrender of annuity plan; and

-            Amounts received as Pension from annuity plan.


Contributions paid for medical insurance eligible for tax benefits under section 80D of the Act 

1. Category of assesses allowed deduction : Individual assessee and Hindu Undivided Family assessee .

2. Eligible premiums : Premiums paid by assessee by cheque out of his taxable income to effect or to keep in force an insurance on the health of following persons:

- In case of individual assessee - Himself/herself, spouse, dependant children and dependant parents.
- In case of HUF assessee - any member of HUF

3. Deduction and upper limit : The qualifying amounts under Section 80D is upto
Rs 10,000/- per year.  However, a higher deduction amount of upto Rs 15,000/- is permitted if the person, for whose health insurance the premium was paid, was aged 65 years or more at any time during the financial year in which the premium was paid. Such amounts of premium paid would be allowed as deduction from the total income of the assessee.



Partial Withdrawals, Surrender Value and Maturity Benefits on Life insurance policies are not taxable as per Section 10(10D) of the Act

As per Section 10(10D) of Act, any sum received under a life insurance policy, including the sum allocated by way of bonus on such policy is exempt from tax. However, this rule does not apply to following amounts:

- sum received under Section 80DD(3) or Section 80DDA(3), or
- any sum received under a Keyman Insurance Policy, or
- any sum received other than as death benefit under an insurance policy which has been issued on or after April 1 2003 and if the premium paid/ payable in any of the years during the term of the policy is more than 20% of the actual capital sum assured.

 

The above information is to give a general overview of some aspects of the tax laws as prevailing currently (as of end Jan 2007), and is not intended to be a tax, investment or legal advice and clients are requested to consult their own tax advisors/ consultants. The above information is subject to change with the change in tax laws and the company is not liable to inform changes in the above to any person.