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Learn About Tax Exemption On Insurance: 2023 Edition

Insurance Know More 23-11-2022 | 5 mins read

What is Tax Exemption?

Tax exemption is a legal right to eliminate some or all of your income from taxation set by the government. Majority of taxpayers can reduce their taxable income, provided they know the correct ways. Be careful, these are not to be confused with tax deductions.

There are many types of tax exemptions in India. Let’s learn about tax exemption on insurance.

Term Insurance Tax Benefit: Explained

Term insurance is a safe protection plan that provides coverage for the term that you are insured. In case of an unfortunate incident such as death, your nominee will receive the sum assured.

There are many tax benefits of term insurance plans. Let us have a look at some of them.

Deductions under Section 80C: The money you invest in term insurance plans allows you to save money as tax benefits. With this, you can get deductions of up to Rs. 1,50,000.

Benefit under Section 10D: As per the updated Section 10D, if the premium of ULIP (collective or singular) exceeds Rs. 2,50,000 per year, tax exemption will not be applicable on the sum received. However, the exception is the death of the policy holder, in which case the sum assured on death will be exempted from the tax. For all other term insurance plans, the maximum premium amount should not exceed Rs. 5,00,000 per year in order to enjoy tax exemption.

Health Insurance Tax Benefits: Explained

Medical coverage is one of the best financial choices you can make. It covers unexpected medical expenses. 

Medical charges are very high in case of hospitalization. So, if paying the minute cost worries you, think about the huge bills. This is why the government provides tax benefits on medical insurance. This encourages more people to add medical insurance to their portfolio.

Mediclaim Deduction: Section 80D

Section 80D offers money deductions on health insurance. It is a great investment for tax planning. The types of mediclaim deductions in Section 80D include:

  • Money spent on maintaining health
  • Money spent as a premium for the policy

Let us have a look at the various deductions. 

  • Preventive healthcare

Below 60 years- Rs. 5000

Above 60 years- Rs. 5000

  • Self, spouse, and children

Below 60 years- Rs. 25,000

Above 60 years- Rs. 50,000

  • Maximum deduction

Below 60 years- Rs. 50,000

Above 60 years- Rs. 1,00,000

  • Parents

Below 60 years- Rs. 25,000

Above 60 years- Rs. 50,000

Exclusions under Section 80D

Certain deductions cannot be claimed under Section 80D:

  • If you choose to make the premium amount in cash.
  • If the premium paid is by the third party, other than you, such as your uncle or aunt.
  • Group health insurance, unless the taxpayer chooses to make extra payments as add-on  to avail of tax deduction.
  • Siblings or relatives who are not financially dependent on the taxpayer.

What To Know Before Buying Medical Insurance For Claiming 80D Deduction

  • Sister, brother, or relative of the taxpayer cannot claim a deduction for tax benefits.
  • If the payment is done by you and your parents, you both can claim the deduction.
  • If the premium is paid for working children, this cannot be claimed.
  • The deduction excludes the cess portion and service tax from the premium amount.
  • Premiums made on behalf of the company cannot be claimed for deduction.
  • If the premium is paid in cash, they are not allowed for deduction. But, by any other mode of payment, deduction can be claimed. 

Attractive Tax Planning Benefits

Let us have a look at the long-term benefits of tax planning: 

Tax planning helps minimize tax liability

There are many tax planning investment programs today. With the help of these plans and programs, you can reduce your tax burden to a great extent. 

Tax planning reduces tax disputes

Proper tax planning at the beginning allows you to stay stress-free. You won’t have to worry about it in the future. It helps protect you from legal liabilities.

Tax planning helps secure future

The best benefit of tax planning is that it helps you secure your future. It allows you to redirect money to income-generating tools.

Tax planning ensures economic stability

Planning tax allows you to contribute to the country’s development. You can manage finances well and avoid worrying at the last moment. 

Tax planning and exemptions

Disabled individuals can claim deductions on medical expenses or health insurance premiums as per the Income Tax Act. The amount of deduction is Rs. 75,000 per year. 
People with severe disabilities can claim a deduction of Rs. 1,25,000.

For more information, visit the official Piramal Finance website.

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