Tax Troubles and Insurance Claims Benefits, Tips and Tricks

Hey policyholder! Experiencing Tax troubles? Taxes and Insurance claims sometimes feel like a complex library of sections and subsections in your insurance journey. That is where experts become a beacon of light! 

Welcome to our guide, where we'll demystify the complex world of taxes on insurance claims, providing clarity and insight in a professional yet approachable manner. 

1. What are Tax Deductions on Insurance claims 

Did you know that paying for Insurance can save you money on taxes? 

It's true! Premiums that you pay for health, car, or home insurance are tax-deductible. This means you can reduce your taxable income by the amount you pay in premiums, potentially lowering your tax bill. 

For instance, if you pay 1,000 for health insurance in a year, you might be able to deduct that 1,000 from your taxable income. This translates to owing less in taxes. 

Therefore, paying for insurance can be a smart way to save on your taxes! 2. What benefits can you avail 

Life insurance : maturity/death benefits and tax deductions under Section 80C, Section 80D and Section 10(10D) of the Income Tax Act, of 1961.

Section 80C: 

● Allows for the deduction of insurance premiums paid for one's own life, spouse, or child, irrespective of their age or dependency status. 

● One can claim deductions up to Rs. 1.5 lakh annually, along with other eligible investments like PPF, fixed deposits, tuition fee paid, home loan repayment,NSC, ELSS etc. 

● To claim this deduction, premiums paid should not exceed 10% of the sum assured for policies issued after April 1, 2012, or 20% for earlier policies. 

● Policies covering individuals with disabilities (mentioned under Section 80U) or diseases (specified under Section 80C) require premiums not to exceed 15% of the sum assured.

● If the policy is surrendered within two years, the allowed benefits of 80C would be reversed and thus be regarded as taxable income

 

Section 80D: 

● One can claim a deduction of Rs 25.000 deduction on Health Insurance Policies of an Individual\spouse\ child. 

● A deduction of 50,000 can be claimed on a dependent senior citizen’s health insurance plan (above the age of 60). 

● Riders added to the base policy such as critical health benefit, hospicare or surgical care, also make the policyholder eligible to claim under this section.

Section 10(10D): 

A. Requirements for Maturity Returns Benefits under Section 10(10D): 

● Benefits are exempt if paid upon the death of the policyholder. 

● Excludes benefits under Section 80DD(3), Keyman Insurance Policy, group insurance, retirement, and annuity payouts. 

● Premium limitations: 

○ Policies purchased between April 1, 2003, and March 31, 2012: Premiums ≤ 20% of the sum assured. 

○ Policies purchased after April 1, 2012: Premiums ≤ 10% of the sum assured.

○ Policies covering individuals under Sections 80U and 80DDB: Premiums ≤ 15% of the sum assured. 

 ● TDS applies for non-exempt amounts exceeding Rs. 1 Lakh annually.

B. Tax Exemptions Under Section 10(10D): 

● Premiums paid ≤ 20% (before April 1, 2012) or ≤ 10% (after April 1, 2012) of the sum assured. 

● Exclusions include Keyman Insurance Policy, payouts under Section 80DD(3), and premiums exceeding specified limits. 

● Policies issued after April 1, 2023, lose exemption if aggregate premiums exceed Rs. 5 Lakhs annually (except death benefits). 

 

Conclusion

With this guide as your compass, you're equipped to conquer any challenge that comes your way. 

But remember, while the fortune favours the bold, consulting with a subject matter expert can prevent you from experiencing insurance claim-related issues and provide consultations so a smooth Claim settlement. 

Personalised guidance tailored to your specific circumstances to avoid claim rejections is all but a few clicks away, ensuring you make the most of tax benefits.

 

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