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Income Tax benefits

Blog Tax

How Insurance can help you save on Income Tax

We make several different investments to ensure we are well-provided for in the future. Whether it is your retirement plan, your child’s education plan, or your wedding expenses, your investments are geared towards providing a safe future.

A very important investment to make is insurance. Both life and health insurance are essential to protect not only your family but also your investments and income. Life insurance provides a shield to your family in case of any unfortunate scenario, whereas health insurance protects your investments and savings by compensating in case of a medical emergency.

Insurance is a smart investment, not only because it provides safety to the family, but also because it provides tax benefits. Let us understand the tax benefits from insurance in detail.


What are Income Tax benefits?

To reward certain types of investments, the Income Tax Act gives a deduction. A deduction means a sum that can be reduced from your total income. Income Tax is calculated on the net income after considering all different types of deductions.

For example, if your total income including interest income and salaried income is Rs. 5,50,000 and you have total deductions of Rs. 2,00,000 under different sections, Income tax will be calculated on Rs. 3,50,000. To put this in a formula,

Taxable Income = Total Income – Total Deductions


What deductions are available on Insurance?

These deductions can be classified into two types: life insurance and health insurance.


Life Insurance:

The premium paid for any life insurance policy gets a deduction under Section 80C of the Income Tax Act. This deduction is available up to Rs. 1.5 lakh. However, this deduction is available only if the total premium paid does not exceed 10 percent of the sum assured as mentioned in the insurance policy.

The deduction under Section 80C is available for all types of insurance:

•    Term insurance

•    Unit Linked Insurance Plan (ULIP)

•    Endowment policies

Another deduction available is for a premium paid to any insurance company for a pension plan. This plan gives a monthly pension after the policyholder reaches a certain age. This deduction is given under Section 80CCC of the Income Tax Act. It is restricted to Rs. 1.5 lakh. However, the total benefit under Section 80C and 80CCC is restricted to Rs. 1.5 lakh.


Health Insurance:

Any amount paid as premium to an insurance company for a health insurance policy gets a deduction under Section 80D of the Income Tax Act. This deduction depends on the person for whom insurance premium is paid. It can be simplified in the form of a table.


 Premium Paid For

 Maximum Deduction Allowed

 Self, spouse, dependent children

 Rs. 25,000


 Rs. 25,000

 Self, spouse, dependent children 
 where  self and spouse are senior   citizens

 Rs. 50,000

 Senior citizen parents

 Rs. 50,000


Will I have to pay Income Tax on benefits received from the Insurance company?

Any amount received on a life insurance policy is exempt from Income Tax. This is provided the premium amount is not more than 10 percent of the sum assured.

Any amount received on raising a health insurance claim with the insurance company is treated as a reimbursement of medical expenses and hence is not charged to tax.

Disclaimer: IndiaNivesh Insurance Brokers Private Limited: Registered with Insurance Regulatory & Development Authority License No. 144 – Direct Insurance Brokers (Life & General) valid up to 6th April 2021 CIN :- U67200MH2003PTC138850 Reg Office A-302 Peninsula Bussiness Park, Senapati Bapat Marg, Lower Parel- 400013. Disclaimer: We are only distributors of Mutual Funds, IPO, Corporate Deposits & Fixed Income Products & PMS is not offered for commodity segment. "Investment in securities market are subject to market risks, read all the related documents carefully before investing