Source: ET Wealth Dec 27, 2010
Points to note:
* The sub section 3 of Section 80 C of the Income Tax Act 1961 clearly points out that a deduction is available only to so much of the premium, which is not in excess of the 20% of the sum assured [the technical term for the amount of life cover the individual taking the policy opts for] on the policy.
It means: If the sum assured is 3 Lakh, 20% of 3 Lakh = 60000. If any amount greater than 60000 is paid as a single premium, it can’t be considered for 80C tax deduction
* The current regulation makes it mandatory for the minimum cover to be to be 110% of the premium for people less than 45 years old.
This means that if I paid a single premium of 1L, the cover should be at least 1.1L
* As per Section 10 (10D(c)), the premium should not exceed 20% of the cover in any year of the policy’s tenure. Only then is the entire amount tax-free at maturity. If not, the maturity is added to the income of that year and taxed.
This means that if my cover is 1L, then premium should not exceed 20000 in any given year for the duration of the policy
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