TAX EXEMPTIONS FOR INSURANCE POLICY

BC0140023

Explanation for the topic:

Premium that is paid for insurance policy serves dual purpose first protection against the risk
and secondly tax exemption provided under Income Tax Act for various policies ranging from
life insurance to other general insurance policies. While at the end of a financial year gross total
income is calculated and tax is levied on the same as per the rates prescribed in the Finance Act,
some deductions from that income is allowed under section 80C of the Income Tax Act, 1961.
This exemption for deducting the premium paid can also be misused by people to evade tax and
hence, it is equally important to keep a tab on such activities. So, that there is no misuse of this
benefit. Benefits under this are not only enshrined on to individuals but also for HUFs.
Companies and business can also claim deduction for the premiums paid by them. There is a
concept of Keyman insurance policy which helps a business recover from the loss of its valuable
assets viz the persons who run it and/or own it. Individual talents are becoming critical to the
success of many companies and employees are also becoming an important factor in investors'
valuation of the entities. Every business has at least a few very valuable employees who
contribute significantly to the running and growth of the company and hence this can be viewed
similar to life insurance policy for a business. There are some tax benefits attached to this.

This paper will being out all the deductions available in cases of premium paid by individual,
HUF, business and companies. Focusing on recent judicial pronouncements.
REVIEW OF LITERATURE:

1. Tax Benefits Due To Life Insurance Policy, Health Insurance Policy And Expenditure On
Medical Treatment,
http://www.incometaxindia.gov.in/Tutorials/20.%20Tax%20benefits%20due%20to%20h
ealth%20insurance.pdf.

This article lays down the various provisions under which deductions on premiums can
be claimed also explains it through numerical examples.
2. POLICY CONDITIONS & TAX BENEFITS,
http://shodhganga.inflibnet.ac.in/bitstream/10603/117622/12/12_chapter%207.pdf.

This article categorizes the policy conditions under five heads: I. Conditions relating to
commencement of risk, II. Conditions of premium, III. Conditions relating to
continuation of policies, IV. Lapse- conditions, and V. Claims conditions.
3. Sanyam Jain,Tax Exemption on Life Insurance Policy under Section 10(10D),
https://www.indiantaxupdates.com/tax-exemption-on-life-insurance-policy-under-
section-1010d/.

This article discusses that as per Section 10(10D) of the Income Tax Act, 1961, any sum
received under a Life Insurance Policy, including the sum allocated by way of bonus on
such policy is exempt from tax whether received from India or any Foreign Company.
4. Income-Tax And Tax Benefits From Life Insurance,
https://www.licindia.in/getattachment/Customer-Services/Tax-Benefit/INCOME-TAX-
FY2016-17.pdf.aspx.
Some important income tax benefits available under various plans of life insurance have
been highlighted in this article.
5. Section 80C: Life Insurance Premium- Eligible Amount & Deduction,
https://taxguru.in/income-tax/insurance-premium-exceeding-20-of-sum-assured-is-ot-
allowable.html.

This article says that it a common perception that Premium Paid all Life Insurance
Policies qualifies for deduction under section 80C of the Income Tax Act,1961 and full
premium amount qualifies for deduction under section 80C .Apart from several other
items provided under section 80C, a taxpayer, being an individual or a Hindu Undivided
Family (HUF), can claim deduction under section 80C in respect of premium on life
insurance policy paid by him/it during the year.

6. How keyman insurance protects the life of business,

https://economictimes.indiatimes.com/tdmc/your-money/how-keyman-insurance-can-
help-protect-the-life-of-a-business/tomorrowmakersshow/49551975.cms.
It defines what is keyman insurance and the benefits available for the same.