LIC Tax Benefits

Life Insurance Corporation (LIC) is one of the leading insurance providers in India. It is a public sector enterprise that offers several insurance products to cater to the insurance needs of a wide range of customers. LIC policies serve the purpose of investments, and people are always on the lookout for tax-saving investment options. As income tax rates increase with an increase in yearly income, taxpayers prefer investment schemes that help them save their hard earned money.  LIC has several such policies that not only enable customers to invest in savings but also enjoy the benefit of tax exemption.

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LIC Privatisation - IPO in FY 2021-2022

The decision to allow privatised ownership of Life Insurance Corporation (LIC) of India has been met with mixed responses. While some see the ongoing wave of privatisation as a definite downfall to a fair economy, others see the change as a welcome move towards growth.

It has also been recently announced that LIC policyholders will be allowed to hold 10% stake in the company. Above 1 crore demat accounts are likely to be opened before the Initial Public Offering, IPO, which is scheduled for after October 2021, as majority of LIC policy holders do not have demat accounts yet.

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Tax benefits on LIC insurances

LIC has multiple insurance policies to suit the vast spectrum of their customer base. Here are all applicable tax benefits that people can get through LIC insurance policies. All of these policies offer tax exemption for payment of LIC premiums as per section 80C of the Income Tax Act of 1961.

Tax benefits from LIC life Insurance policies under section 80C

• Let us closely observe the tax benefits that customers receive under section 80C of the IT Act if they have LIC life insurance policies:

• Premiums paid towards policies activated on or before 31st March 2012 in the name of oneself or spouse or children are eligible for a deduction of up to 20% of the capital Sum Assured

• Premium paid towards policies activated after 1st April 2012 in the name of oneself or spouse or child are eligible for a deduction of up to 10% of the capital Sum Assured

• Premiums paid towards deferred annuity plans for oneself or spouse or children are eligible for deduction. However, it is applicable only if the contract does not offer a cash payment to the customer in lieu of the annuity payment made by him/her.

Tax benefits from LIC life insurance policies under section 80CCC

• 80CCC is a subsection of 80C. It offers tax exemption to the customers who pay insurance premium from their taxable income. These benefits are applicable only to annuity plans that promise the customers payment of pension later.

Tax benefits from LIC insurance policies under section 80D

• Section 80D of the IT Act include most tax benefits related to health insurance. Let us closely observe each of these deductions in detail:

• For those customers who have paid premiums towards government health insurance schemes or health insurances for the self/family are allowed a deduction of up to Rs.25,000. This benefit is also applicable to health check-up of either the policyholder or his/her family

• An additional deduction worth Rs.25000 is allowed in case someone has paid premiums towards maintaining health insurance. This benefit is also applicable to health check-ups of parents.

• For the two above-mentioned points of exemption, in case either of the members is more than 60 years old, then the deduction increases by Rs.5000 and the limit changes to Rs.30,000

• If any of the abovementioned health check-ups are preventive in nature, then the maximum limit allowed is Rs.5000

• The deduction allowed is up to Rs.25,000 for Hindu Undivided Families (HUFs), if the amount is paid towards the health insurance for any family member

Tax benefits from LIC insurance policies under section 80DD

• 80DD is a subsection 80D. It deals with the tax exemption for deposits made towards maintaining a LIC insurance of a handicapped person. The deduction limit for such cases is Rs.50,000. For disability, the limit is extended to Rs.1,00,000. LIC's Jeevan Aadhar plan is meant for this kind of insurance needs of customers.

Tax benefits from LIC insurance policies under section 10 (10D)

• The death claims or maturity benefits received by policyholders are eligible for tax exemption under this section of the Income Tax Act.

• This tax exemption is applicable only for those policies that weren't issued as a keyman policy or as a policy under section 80DD.

• Under this section, policies issued on or after 1st April 2013 are eligible for a tax exemption of up to 20% of the actual sum assured.

• Policies issued on or after 1st April 2012 are eligible for a tax exemption of up to 10% of the actual sum assured.

These policies must be issued solely for the life protection of a severely disabled person as mentioned in section 80U or a person suffering from one of the ailments listed in section 80DDB

These are the various tax exemptions that can benefit the customers of LIC policies. However, taxpayers must know that the maximum deduction allowed as tax benefit is Rs.1.5 lakh. It includes all other tax-exempted financial products that fall under section 80C of the Income Tax Act.

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