Simplified Laws Guide to Taxation and Legal Concern Introduction:
As per section 80C (1), “In computing the total income of an assessee, being an individual or a Hindu undivided family, there shall be deducted, in accordance with and subject to the provisions of this section, the whole of the amount paid or deposited in the previous year, being the aggregate of the sums referred to in sub-section (2), as does not exceed one lakh rupees.”
What do we understand?
- Applicable to Individual and HUF tax payers only.
- The amount should be deposited or invested in one of the schemes mentioned further in the section, individually or collectively
- Maximum deduction allowed per year = ` 1,50,000/-
As per section 80C (2)(i),” The sum referred to in sub-section (1) shall be any sums paid or deposited in the previous year by the assesse to effect or to keep in force an insurance on the life of persons specified in sub-section 4”
What do we understand?
- Deduction allowed for payment of premium of a life insurance policy only.
- Payment should be done during the financial year only. In case it is made in any other year for current year, claim in that year.
- Payment should be done for the policy of persons mentioned in sub-section 4 only.
Further, section 80C (3A) says, “The provisions of sub-section (2) shall apply only to so much of any premium or other payment made on an insurance policy, other than a contract for a deferred annuity, issued on or after the 1st day of April, 2012 as is not in excess of ten per cent of the actual capital sum assured.”
What do we understand?
- Payment should be made to an insurance policy other than deferred annuity plan.
- Premium payment should not be more than 10% of the actual capital sum assured.
- In case it exceeds 10%, deduction will be allowed only upto 10% of actual capital sum assured.
Lastly, Section 80C (4) says, “The persons referred to in sub-section (2) shall be the following, namely:—
(a) for the purposes of clauses (i), (v), (x) and (xi) of that sub-section,—
(i) in the case of an individual, the individual, the wife or husband and any child of such individual, and
(ii) in the case of a Hindu undivided family, any member thereof;
What do we understand?
- Premium should be paid only on policy of tax payer, his/her spouse and children [married or not] – in case of individual tax payer.
- Premium paid for parents, siblings of individual tax payer are not covered
- Premium can be paid on policy of any member of HUF – in case of HUF Tax payer.
FREQUENTLY ASKED QUESTIONS:
- Mr. Ramesh had failed to pay premium of the previous year (2013) but decided to pay it along with the premium for the year 2014. He has paid premium of both the years on 5th May, 2014 towards his Life Insurance policy. Whether he can claim the premium paid for both the years in 2014?
Yes. Any premium paid including arrears can be claimed during the year in which the premium is actually paid
- Whether premium paid on all insurance policies is covered?
Premium paid on Term Insurance Policies, Endowment Policies, ULIPs, money back policies, pension plans and whole life policies, single premium policies are covered. Premium paid on Health Insurance and deferred annuity plan is not covered.
It is suggested to verify the policy offer document and see whether they have mentioned about tax benefit u/s 80C
- Can I pay premium by Cash?
Yes. Even if you pay premium by cash, you can get tax benefits
- Mr.Ramesh has a life policy covering himself, his wife and kids. He has paid ` 20,000/- as premium during the year. Now, in order to save tax on the income of his wife, he wants his wife to claim the tax benefit on the premium paid by him. Can she take the benefit, though the payment is made by her husband?
No, she cannot claim the benefit because the payment needs to be made by the assesse himself.
- Mr. Ramesh has paid ` 25,000/- premium on 10th May 2014; but for personal reasons discontinue the policy in the month of December, 2014. Can Mr. Ramesh claim tax benefits on the premium paid during the year?
- If the policy is less than 2 years, then he can’t claim the tax benefits. Not just that, whatever he has claimed for tax benefits in the previous years to be offered to tax in the year of terminating the policy
- If the policy is more than 2 years, he can claim the tax benefits.
ILLUSTRATION:
Mr. Ramesh has the following income and deductions under 80C:
| Particulars | Case 1 | Case 2 | Case 3 |
| Gross Taxable Income | `4,20,000 | `50,000 | `1,20,000 |
| Premium paid for own life insurance policy | `15,000 | `15,000 | `15,000 |
| Premium on life insurance policy of wife and children | `95,000 | `95,000 | `45,000 |
| Premium paid on life insurance policy of parents | `5,000 | `5,000 | `5,000 |
| Deduction u/s 80C would be [premium paid on self or policy of spouse and children OR Gross Taxable Income, whichever is less] | `1,10,000 [15,000 + 95,000 ] or `4,20,000, whichever is less = `1,10,000/- | `1,10,000 [15,000 + 95,000 ] or `50,000, whichever is less =`50,000/- | `60,000 [15,000 + 45,000 ] or `1,20,000, whichever is less = `60,000/- |
| Premium paid on life insurance policy of parents would not be allowed as deduction. | |||
