Easily Organize, Claim and Renew Insurance!

Find Advisor

LIC 80C: Deductions under Section 80C for LIC Premium Payments

The Life Insurance Corporation of India, popularly called LIC in short, is the oldest and the largest life insurance companies in India. Founded in 1956, the company enjoyed a monopoly position in the life insurance segment until the year 2000 when the Insurance Regulatory and Development Authority of India (IRDAI) was formed and private life insurance companies were allowed in the market. Today, there are more than two dozen life insurance companies offering a variety of insurance plans but LIC has maintained the largest market share till date.

LIC offers a range of life insurance policies and these policies provide dual benefits. They not only let you avail risk coverage and fulfil your life’s goals, but they also allow you tax benefits. When it comes to tax benefits many individuals are confused about the actual tax benefits that they can avail. So, let’s have a look at the different types of policies offered by LIC and the tax benefits which they provide –

Types of LIC policies

Here are the different types of policies offered by LIC – 

1. Term insurance plans

Term plans are those which cover the risk of premature death and provide financial security. LIC offers two types of term insurance plans which are as follows –

  • LIC’s Tech Term Plan
  • LIC’s Jeevan Amar Plan

2. Whole life plans

Whole life plans are like term insurance plans which cover the risk of death during the policy tenure. However, while term plans have a fixed tenure, whole life plans allow coverage to 99 or 100 years of age. LIC offers one whole life policy which is called LIC’s Jeevan Umang Plan.

3. Endowment plans

Endowment plans are savings oriented life insurance plans. They provide coverage against the risk of premature death during the policy tenure and also promise a maturity benefit if the tenure comes to an end and the insured is alive. LIC offers a range of endowment assurance plans which are as follows –

  • LIC’s New Jeevan Anand Plan
  • LIC’s Jeevan Labh Plan
  • LIC’s New Endowment Plan 
  • LIC’s Single Premium Endowment Plan 
  • LIC’s New Bima Bachat Plan
  • LIC’s Jeevan Lakshya Plan
  • LIC’s Aadhaar Shila Plan
  • LIC’s Aadhaar Stambh Plan

4. Money-back plans

Money-back plans are like endowment plans which offer a combination of savings and insurance cover. However, while endowment plans offer a lump sum benefit on death or maturity, money back plans offer periodic returns in the form of survival benefits. LIC’s range of money back policies include the following –

  • LIC’s Bima Shree Policy 
  • LIC’s Jeevan Shiromani Policy 
  • LIC’s New Money Back Plan – 20 years
  • LIC’s New Money Back Plan – 25 years
  • LIC’s New Children’s Money Back Plan 
  • LIC’s Jeevan Tarun Plan

5. Pension plans

Pension plans are those which help you in creating a retirement corpus and receive guaranteed incomes after retirement. LIC offers two types of retirement plans which are as follows –

  • Pradhan Mantri Vaya Vandana Yojana
  • LIC’s Jeevan Shanti Plan

6. Unit Linked Plans

Unit linked plans are non-conventional life insurance plans which allow you investment returns as well as insurance coverage. The plan invests the premiums in market linked funds which offer market-linked returns and help in maximizing your wealth. LIC has three types of unit linked policies which are as follows –

  • LIC’s New Endowment Plus Plan
  • LIC’s Nivesh Plus Plan
  • LIC’s SIIP Plan

7. Health plans

Health insurance plans are those which give you financial assistance if you suffer from a medical contingency which is covered by the plan. This financial assistance helps you take care of the financial implication which might occur when you face a medical emergency. LIC offers the following types of health insurance plans –

  • LIC’s Jeevan Arogya Plan
  • LIC’s Cancer Cover Plan

Tax benefits of LIC plans

Now that you know the list of plans offered by LIC, let’s find out about their tax benefits. The tax benefits from LIC plans can be claimed as a deduction and also as an exemption. Deductions are available when you pay the premium for buying a LIC policy and exemptions are available when you receive any benefit from the LIC policy. Let’s study the deductions and exemptions in details –

Deductions 

Deduction under Section 80C of the Income Tax Act

Deduction under Section 80C of the Income Tax Act is available on the premiums paid towards the following types of plans –

  • Term plans
  • Whole life plans
  • Endowment plans
  • Money-back plans
  • Unit linked plans

If you buy any of these policies and pay a premium, the premium paid would be allowed as a deduction from your taxable income. However, to claim the deduction, the following points should be kept in mind –

  1. The deduction would be allowed up to a limit of INR 1.5 lakhs
  2. You can pay the premium for yourself, your spouse and dependent children if you are an individual taxpayer. For Hindu Undivided Families (HUFs), the premium can be paid for any member of the HUF to claim the deduction.
  3. If the policy was issued before 1st April 2012, the premium should not be more than 20% of the sum assured. If the premium exceeds 20% of the sum assured, the excess premium would not be allowed as a deduction. For example, if the sum assured is INR 1 lakh, the maximum eligible premium for deduction would be INR 20,000. If a premium of INR 25,000 is paid, INR 20,000 would be allowed as a deduction while the remaining INR 5000 would be a part of your taxable income.
  4. If the policy is issued on or after 1st April 2012, the premium should not be more than 10% of the sum assured. If the premium exceeds 10% of the sum assured, the excess premium would not be allowed as a deduction. For example, if the sum assured is INR 1 lakh, the maximum eligible premium for deduction would be INR 10,000. If a premium of INR 15,000 is paid, INR 10,000 would be allowed as a deduction while the remaining INR 5000 would be a part of your taxable income.
  5. If the policy is taken on the life of an individual who is either a disability as defined under Section 80U of the Income Tax Act, 1961, or suffering from a specified illness as mentioned under Section 80DDB of the Act, the limit of deduction is different. If such a policy is issued on or after 1st April 2013, the premium should not be more than 15% of the sum assured. If the premium exceeds 15% of the sum assured, the excess premium would not be allowed as a deduction. For example, if the sum assured is INR 1 lakh, the maximum eligible premium for deduction would be INR 15,000. If a premium of INR 20,000 is paid, INR 15,000 would be allowed as a deduction while the remaining INR 5000 would be a part of your taxable income.
  6. If the premium is paid towards a deferred annuity plan, the premium would be allowed as a deduction under this Section.

Deduction under Section 80CCC of the Income Tax Act

Section 80CCC of the Income Tax Act, 1961, allows deduction on the premium paid to buy an annuity policy which pays annuity pay-outs throughout your lifetime. Thus, if you buy the pension plans offered by LIC, the premium paid would be allowed as a deduction under this Section. However, to claim the deduction, the following should be kept in mind –

  • If you choose the deferred annuity mode, the deduction would be allowed under Section 80C. If, however, an immediate annuity policy is bought, the deduction would be allowed under Section 80CCC.
  • The maximum limit of deduction available under Section 80C, Section 80CCC and Section 80 CCD (1) (for a contribution towards the National Pension System), is INR 1.5 lakhs.

Deduction under Section 80D of the Income Tax Act

Section 80D is available if you invest in LIC’s health plans. If you opt for LIC’s Jeevan Arogya or Cancer Cover Plans, the premium paid would be allowed as a deduction under this section. The deduction is available for up to INR 25,000 if you buy a policy for self, spouse or dependent children. The deduction limit increases to INR 50,000 if you are aged 60 years and above

Deduction under Section 80DD

This deduction is available if you had bought LIC’s Jeevan Aadhaar or Jeevan Vishwas Policy which have now been discontinued. These policies were meant to provide coverage to disabled or handicapped individuals. So, if you bought either of these policies for dependent suffering from a disability, you would be allowed the deduction under Section 80DD. The premium would be allowed as a deduction when you bought the policies when they were available and are still paying their premiums. The deduction limit is up to INR 75,000 which increases to INR 1.25 lakhs in case of severe disability. 

Exemptions

As stated earlier, exemptions are available on the benefits received from a LIC policy. Here are the different sections of the Income Tax Act, 1961 which allow exemptions on your LIC policy benefits –

Exemption under Section 10 (10A) on commuted pension

If you had bought a deferred annuity plan from LIC, you would be allowed commutation of pension when the plan matures. This commutation means withdrawing 1/3rd of the accumulated corpus in cash in a lump sum while the remaining 2/3rd of the corpus is used to pay annuities. The commuted pension which is withdrawn in lump sum is allowed as a tax-free income under Section 10 (10A) (iii) of the Income Tax Act, 1961.

Exemption under Section 10 (10D) of the Income Tax Act

The maturity or death benefit received from the following types of LIC policies would be exempted from tax the hands of the policyholder or the nominee, as the case may be–

  • Term insurance plans
  • Whole life plans
  • Endowment plans
  • Money-back plans
  • Unit linked plans

The terms and conditions of the exemption under this section include the following –

  1. The sum assured or fund value including any bonus, guaranteed additions or loyalty additions would be allowed as an exemption
  2. If the policy was issued before 1st April 2012, the sum assured should be a minimum of 5 times the premium paid. If the sum assured is lower than 5 times the premium paid, the net returns from the policy would be fully taxable in the hands of the policyholder. The net return from the policy is defined as the maturity benefit received less the total premiums paid under the plan. However, the death benefit would be completely tax-free whatever the sum assured.
  3. If the policy was issued on or after 1st April 2012, the sum assured should be a minimum of 10 times the premium paid. If the sum assured is lower than 10 times the premium paid, the net returns from the policy would be fully taxable in the hands of the policyholder. The net return from the policy is defined as the maturity benefit received less the total premiums paid under the plan. However, the death benefit would be completely tax-free whatever the sum assured
  4. If the policy was issued on or after 1st April 2013 on the life of a disabled individual (as defined under Section 80U) or on the life of an individual suffering from a specific illness (as defined under Section 80DDB), the premium should not be more than 15% of the sum assured. If the premium is more than 15% of the sum assured, the net return from the policy would be fully taxable in the hands of the policyholder. The net return from the policy is defined as the maturity benefit received less the total premiums paid under the plan. However, the death benefit would be completely tax-free whatever the sum assured
  5. The policy should not have been issued under the provisions of Section 80DD (3)
  6. The policy should not be a Keyman insurance policy

TDS on LIC policy benefits

If the policy benefit is not eligible for an exemption under Section 10 (10D) of the Income Tax Act, 1961, because the premium exceeds the specified limit of the sum assured, TDS might be deducted by LIC before paying the policy benefits. TDS would be deducted @ 5% only if the maturity benefit payable under the plan is more than INR 1 lakh. 5% of TDS would be deducted from the net returns of the policy which is the benefit received less the premiums paid.

So, these are the tax benefits on LIC policies which you should know so that you can claim the relevant benefits and enjoy tax reliefs.

FAQ’s

No, the annuity payments received are considered as income in your hands. That is why the annuity received would be taxed at your income tax slab rates.

Yes, single premiums are also allowed as a deduction under Section 80C. However, the premium should be limited to 10% of the sum assured to claim the deduction. Any excess premium paid would be taxable. Moreover, the maximum deduction limit is also INR 1.5 lakhs.

Since the policy was bought before 1st April 2012, the premium should be limited to 20% of the sum assured. Your sum assured was INR 2 lakhs and the premium was INR 25,000 which is less than 20% of the sum assured. Thus, you would receive a complete exemption on the sum assured and bonus received from the endowment plan.

No, deduction on premium paid for dependent parents is not allowed. You would, therefore, not be allowed to claim deduction on the premium paid for the endowment policy on your mother’s life. In fact, you might not be allowed to buy a policy on your mother’s life since insurable interest is not considered to exist between a child in the life of his/her parents.

No, the new tax regime does not allow Section 80C deductions on the premiums paid towards a life insurance policy. You would, therefore, not be able to claim the deduction under the new tax regime.