LIC policy benefit: Know how section 10 helps you save income tax

State-owned Life Insurance Corporation of India (LIC) is the largest insurance policy provider - for life insurance, health insurance, pension plans or others. LIC policyholders can claim income tax benefits on their LIC policies. At present, there are no taxes for income up to Rs 2.5 lakh for individuals below 60 years of age, and the benefit is applicable on income up to Rs 3 lakh for those above 60 years of age but below 80 years, while Rs 5 lakh income for above 80 years of age. Others have to pay a certain amount to the Income Tax department, as a part of their tax payment. 

The tax benefits are given in the form of standard deductions and various investments. When we talk about investment, insurance is among the most opted one by taxpayers.

But in case of maturity or death claims for LIC policies, under section 10 there are host of exemptions offered by the IT-department. 

As per Section 10(10D) of the Income Tax Act, 1961, any sum received under a Life Insurance Policy, including the sum allocated by way of bonus on such policy is exempt from tax where the sum is received as a death benefit.

Exemption under this section shall be available only if the premium payable in any of the years is not more than 15% of the actual Capital Sum assured. 

However, to  get exemption under above section for sum received other than death benefit various conditions to be satisfied, explains LIC. These are: 

1. Policy shall not be issued under Section 80DD(3), or

2. Policy shall not be issued as a Keyman Insurance Policy, or

3. Policy which has been issued on or after April 1, 2003 and the premium paid in any of the years during the term of the policy not exceeding 20% of the Actual Capital Sum Assured.

4. Policy which has been issued on or after April 1, 2012 and the premium paid in any of the years during the term of the
policy not exceeding 10% of the Actual Capital Sum Assured.

5. Where the policy, issued on or after the 1st day of April, 2013, is for insurance on life of any person, who is—

(i) a person with disability or a person with severe disability as referred to in section 80U, or

(ii) suffering from disease or ailment as specified in the rules made under section 80DDB. 

Recently, the IT-department updated Form 16.  It added new columns for exemptions made under section 10 of the Income Tax Act. Section 10 lends a helping hand to taxpayers who are looking to reduce their taxes.