What are the tax benefits available to an individual in respect of premium paid on life insurance policies?

Rebate under Section 88 is available in respect of life insurance premium only up to Assessment Year 2005-06. From the Assessment Year 2006-07, life insurance premium paid by an individual qualifies for a deduction under Section 80C of Income Tax Act, 1961. An individual can claim deduction on premium paid for a maximum of Rs 100,000 in each financial year. Deduction under Section 80C is a deduction from gross total income. Amount deductible under Section 80C is equal to

• 100% of the "qualifying investment", which includes life insurance premium, or
  
  

• Rs 100,000, whichever is lower.

The tax benefits for premium paid per annum in case of pension plans are eligible for a maximum benefit of Rs 100,000 under Section 80CCC. The said Section 80CCC limit also falls under the overall Section 80C limit of Rs 100,000. In other words, the deduction aggregate, under Section 80C, 80CCC and 80CCD cannot exceed Rs 100,000.

Are maturity proceeds on life insurance and pension policies taxable?

The maturity proceeds of life insurance policies are not taxable. However, under pension plans, upto one-third of the maturity amount can be withdrawn in cash and the same is treated as tax-free. An annuity has to be purchased with the remaining two-third amount. Pension receipts from the same will be treated as income in the hands of the assessee and taxed accordingly.

Can tax benefits be claimed if the premium is paid by an individual on his/her spouse's policy?

Tax rebate under Section 88 can be claimed if the premium is paid by an individual on his/her spouse's policy but up to Assessment Year 2005-06. From the Assessment Year 2006-07 life insurance premium paid by an individual on his/her spouse's policy qualifies for a deduction under Section 80C of Income Tax Act, 1961.

If a person discontinues paying premium on his life insurance or a pension policy, does he get tax benefits?

If a person stops paying premium amounts on his/her life insurance policy, it amounts to discontinuation of the policy. Hence, he is not entitled to claim any tax benefits.

If a tax-payer discontinues the life insurance policy before premiums have been paid for a period of 2 years from the commencement of the policy, no tax deduction is allowed in respect of any premium paid on that policy in the year in which the policy is terminated.

Further, the amount of tax deduction, allowed for the premium paid in the preceding year, is also treated as the tax payable for the year in which the policy is terminated.

If a person, participating in a Unit Linked Insurance Plan (ULIP), terminates his policy, can he claim any tax benefits on the same?

If a person participates in a Unit Linked Insurance Plan (ULIP) and then terminates his participation, he will not be entitled to claim any tax benefits.

What are the deductions available in respect of a medical insurance premium?

The premium paid for medical insurance qualifies for rebate under Section 80D as follows-

• Insurance premium paid or Rs 10,000 whichever is lower.
  
  

• The aforesaid limit is Rs 15,000, where the individual or his spouse or dependant parents or any member of the family (for whom such premium is being paid) is a senior citizen (i.e. one who is resident in India and who is at least 65 yrs of age at any time during the previous year).