As the end of another financial year is approaching, we are coming across a number of advertisements of insurance companies for their life insurance products. The major emphasis in these advertisements is on the Tax Benefits upto Rs. 33,990. Let’s see what are the various conditions that need to be fulfilled to get this benefit:1. Premiums paid on life insurance policies reduce the amount of taxable income (as per section 80C of the Income Tax Act). However, there is a ceiling limit of Rs. 1 lakh. Thus the maximum deduction available on premium of life insurance policies is Rs. 1 lakh.
2. Now, the second aspect here is that the basic tax rates range from 10% to 30% depending upon the amount of income. For the financial year 2008-09 (assessment year 2009-10), the maximum tax rate of 30% is applicable if the total income is above Rs. 5 lakhs.
(Total income is the gross income less deductions and benefits available under chapter VI A- mainly they are section 80C benefits of 1 lakh and mediclaim premiums)
3. The third aspect here is that an additional surcharge @ 10% of basic tax is levied if the total income is above Rs. 10 lakhs.
4. An amount equal to 3% of Basic Tax plus Surcharge (if any) is levied as education and higher education cess.
Summarizing the above , to get the maximum tax benefit of Rs. 33,990; our total income has to be above Rs. 10 lakhs.
Moreover, if we have invested any amount in other schemes under section 80C of the Income Tax Act, then the tax benefit amount of this particular policy would reduce accordingly.
Rs.33,990 is the maximum amount of tax benefit available under the section.
Image: Taxation Guide
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