Life Insurance is necessary for everyone. Financial experts recommend that investment should start with an insurance policy. Do you know whether the amount received on the maturity of the insurance is taxed or not.
Life Insurance maturity tax rules: Does this question also arise in your mind whether the maturity amount of life insurance policy is taxed or not. Financial experts recommend that everyone should buy adequate insurance for himself and his family. Buy insurance first as soon as you start earning and then focus on investments and savings. In this article, we know the answers to these three major questions: when is taxed on insurance policy and maturity amount, when is it not taxed and how much is taxed.
Tax benefit is available under two sections
If you buy an insurance policy, then you get the benefit of deduction under section 80C on the premium amount. Apart from this, the benefit of taxation on insurance is also available under section 10(10D). In this section, the details of tax applicable on the maturity amount have been given.
Tax benefit under section 80C on premium amount
Under Section 80C, tax exemption is available on the premium amount for buying an insurance policy. The limit of this section is Rs 1.5 lakh. As per the rule, 10 per cent of the sum assured or the premium amount, whichever is less, is eligible for tax deduction under this section.
How is tax calculated on maturity?
The maturity amount of the insurance is completely tax free under section 10(10D). However, there is a condition regarding this. As per the condition, if the annual premium amount of a life insurance policy is less than 10% of the sum assured, then maturity is completely tax free. However, the 10 per cent rule is applicable to those policies which are bought after April 2012. If a policy has been purchased before that, then the premium amount for this can be up to 20 percent of the sum assured.
If the premium is more than 10% of the premium
If the annual premium amount exceeds 10% of the sum assured, the maturity amount becomes fully taxable. As we know, the maturity of any insurance policy is prepared by combining Bonus and Sum Assured. If the premium amount is more than 10% of the sum assured, then the entire maturity amount is taxable.
