Doing the calculation will help in saving tax on maturity amount.
New Delhi. All traditional life insurance policies have a maturity value, be it a money back plan or an endowment plan. This amount is received by the insured at the end of the policy term.
This is how the maturity amount is decided-
The maturity amount that is received after the maturity of a traditional life insurance policy consists of two parts. Sum Assured and other bonus accrued during the term of the insurance. On maturity of the policy, the insured also gets the bonus amount along with the sum assured.
Sum Assured Completely Tax Free –
Under Section 10(10D) of the Income Tax Act, the sum assured on maturity or death of the insured is completely tax free. Tax exemption is also available on the amount of bonus. However, there are certain conditions that need to be fulfilled in order to avail the tax benefit.
This is the rule for getting tax exemption-
A policy that is purchased after April 1, 2012, will get full tax exemption on the maturity amount only if its premium is less than 10% of the sum assured. If you are paying an annual premium of Rs 1 lakh, then the minimum sum assured should be 10 lakhs for tax exemption.
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