Income Tax Deduction: If you are buying a life insurance policy to save income tax at the last moment, then proceed with caution. The rules of insurance have changed slightly and now tax has been started on single premium insurance policies.
New Delhi. If you are employed, then your company’s HR might have started the process of asking for proof of investment. Most of the people must have received the mail from HR by now, because there are still 3 months left for the end of the financial year. In view of this, many employees try to save tax by investing at the last minute. If you are also engaged in such an exercise and want to save tax by buying an insurance policy at the last minute, then this news is useful for you.
Actually, some rules regarding insurance policy have changed. If you do not know this, your objective of purchasing the policy may remain incomplete. For this you will spend a lot of money and you will not be able to save tax on it. Although there is still time till March 31 for the end of the current financial year, but companies have to prepare their data by the end of February, that is why they are sending mails etc. to the employees to present the investment figures.
How much tax saving on insurance
Under Section 80C of the Income Tax Act, a taxpayer gets a rebate of up to Rs 1.5 lakh annually on purchasing a life insurance policy. This discount is also given on payment of single premium. That means, if you have paid up to Rs 1.5 lakh on a life insurance policy in a financial year, you can claim tax exemption on it.
What has changed in the rules?
Tax exemption can be claimed on payment of single premium for any life insurance policy purchased after April 1, 2012. But, the condition is that your annual premium should not exceed 10 percent (if disabled, 15 percent) of the sum assured amount of the policy. If this rule is followed then you will not have to pay tax on the maturity of such a policy.
How much tax will be charged
Insurance expert Manoj Jain says that if the annual premium of a single premium life insurance policy is more than 10 percent of its sum assured, then tax will have to be paid on the amount received on maturity. This can be a very big amount. Your insurance company can deduct 5 percent tax on the maturity amount under Section 194DA of Income Tax. Suppose you have taken a policy of Rs 18 lakh and its annual premium is Rs 2 lakh, then on its maturity you will have to pay tax of 5 percent. In this way, if you are paid Rs 20 lakh including bonus on maturity, then you may have to pay 5 percent of it i.e. Rs 1 lakh as income tax.
