What are the rules relating to claiming deduction for life insurance premium under the income tax Act? I am paying life insurance premium for my father. Can I claim this as deduction?

Rajan Raghu

The premium paid can be claimed as a deduction up to maximum of ₹1.5 lakh under section 80C, subject to certain conditions.

The common perception is that the entire premium paid towards a life insurance policy is deductible from taxable income but this is not true. In case of policies bought on or after April 1, 2012, the maximum deduction allowed for premium is 10 per cent of the sum assured; any excess amount paid cannot be claimed as deduction (for instance, if you hold an endowment plan that was bought after April 1, 2012, where the sum assured is ₹1 lakh and the premium is ₹15,000, you can claim tax deduction only for ₹10,000).

For policies issued before March 31, 2012, the ceiling is 20 per cent. Also, note that one can claim tax deduction for insurance premium only if he/she has stayed with the policy for at least two years.

In case of a ULIP, the minimum holding period is five years. If you terminate it earlier, the aggregate amount of tax deductions allowed in the previous years will be disallowed and the policyholder will have to pay tax accordingly. Further, deduction is allowed only for policies taken for self, spouse and the children. So, for the premium you pay for the life insurance policy taken in the name of your father, no deduction is available to you.

The sum paid to the nominee after the death of the policyholder or the maturity amount of an endowment plan or a ULIP is tax exempt under section 10 (10D). But, here again, do note that if the premium paid is more than 10 per cent of the sum assured in case of a policy bought after April 2012 or more than 20 per cent in case of a policy bought between April 2003 and March 2012, the maturity amount will be taxable.

Have a question on insurance? Send your queries to insurancequeries@thehindu.co.in

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