When single premium insurance policies deny you tax advantages

A single premium life insurance coverage (SPLI) additionally qualifies for tax advantages. You can get tax advantages for making investments and getting the maturity proceeds, respectively. However, an SPLI coverage could not all the time enable you to avail of tax deduction advantages.

Here, we check out the place tax profit in respect of SPLI coverage is unavailable.

Tax guidelines: The premium you pay for the SPLI coverage is eligible for tax deduction below Section 80C of the I-T Act. You can take a most deduction of ₹1.5 lakh below this part. Further, the maturity proceeds (together with bonus) acquired below SPLI coverage issued on or after 1 April 2012 are tax-free if the premium payable for any of the years isn’t greater than 10% (15% within the case of an individual with a incapacity) of the particular capital sum assured. Sudhakar Sethuraman,companion, Deloitte India, mentioned, “Where the premium paid is greater than 10% (or 15% as relevant) of the sum assured, the insurer is required to deduct tax below Section 194DA on the fee of 5% of the maturity quantity.”

Conditions

An individual who opts for the simplified tax regime (new tax regime) is not eligible for deduction under Section 80C. However, maturity proceeds from a life insurance company continue to be exempted under section 10(10D) in the new tax regime.

“You cannot claim deduction when the premium is less than the gross income. For instance, if the gross income of an individual is nil (after considering loss from house property and other exemptions), then you cannot claim deduction under section 80C of the I-T Act,” mentioned Sethuraman.

This can be true the place the utmost quantity of deduction below Section 80C ( ₹1.5 lakh) is already exhausted by different qualifying investments or funds equivalent to contribution to provident fund, compensation of dwelling mortgage, and so on.

If the premium you pay for the SPLI coverage is greater than 10% of the sum assured, you’ll not get the tax profit. For occasion, if the SPLI coverage premium paid is ₹2 lakh and the sum assured is ₹18 lakh, then the premium is greater than 10% of the sum assured. Hence, the SPLI coverage premium of ₹2 lakh is not going to be eligible for a tax deduction.

Similarly, the maturity proceeds from the SPLI coverage will stay tax-free provided that the minimal cowl is at the very least ten occasions the one premium paid for the coverage. However, if the coverage proceeds come up as a result of policyholder’s dying, then the sum assured is exempt from tax, regardless of the extent of the premium paid for the coverage.

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