Insurance Tax Treatment & Riders

Section 80C permits a deduction of up to ₹1.5 lakh per assessment year on premium paid for life insurance covering self, spouse, and any child (whether dependent or not, married or not). The deduction is subject to a premium-to-sum-assured ratio: for policies issued on or after 1 April 2012, the premium in any year must not exceed 10% of the sum assured for the deduction (and the corresponding 10(10D) exemption) to apply; for policies issued before that date, the limit was 20%. For policyholders with a disability under Section 80U or a specified disease under Section 80DDB, the limit is 15% from FY13 onwards. The 80C limit of ₹1.5 lakh is shared with EPF, PPF, ELSS, principal repayment of home loan, and other listed instruments — most salaried professionals exhaust the limit before considering insurance premium. Section 80D covers health insurance premium and applies separately from 80C. The structure: ₹25,000 deduction for premium on self, spouse, and dependent children (₹50,000 if any of them is a senior citizen aged 60+); an additional ₹50,000 for premium on parents who are senior citizens (₹25,000 if non-senior); and a sub-limit of ₹5,000 for preventive health check-up included within the overall 80D ceiling. The maximum aggregate 80D deduction available to a non-senior policyholder with senior parents is therefore ₹75,000 (₹25,000 + ₹50,000); for a senior policyholder with senior parents it is ₹1 lakh. Section 10(10D) exempts the proceeds of a life insurance policy — including bonuses and the maturity benefit — from tax in the hands of the recipient, subject to the 10%/20% premium-to-sum-assured ratio mentioned above. ULIPs receive special treatment under amendments effective FY21-22: where the aggregate annual premium across all ULIPs of an individual exceeds ₹2.5 lakh, the maturity proceeds become taxable as capital gains. Death proceeds remain exempt regardless. GST is levied on the premium itself: 18% on health insurance premium (with input tax credit available to businesses paying the premium for their employees), 18% on term insurance premium, and a mixed structure on life insurance with an investment component — typically 4.5% on the first-year premium and 2.25% on renewals for endowment products, and a higher composite rate for ULIPs computed on the loaded portion. The pre-tax-versus-post-tax comparison: a 30% slab taxpayer paying ₹20,000 health premium earns a tax saving of approximately ₹6,240 under 80D, reducing the effective post-tax premium to ₹13,760. Riders — Waiver of Premium, Accidental Death Benefit, Permanent Disability, Critical Illness — attach to a base policy and follow the tax treatment of the base policy: the rider premium qualifies for 80C if the rider attaches to a life policy, and rider proceeds are typically tax-free under 10(10D), subject to the same premium-to-sum-assured ratio applying to the bundled premium.