Is LIC Premium Covered Under Section 80C?
- Rashmita Choudhary
- Apr 30
- 9 min read
Section 80C of the Income Tax Act offers taxpayers a chance to reduce their taxable income by claiming deductions on eligible investments and expenses. One such deduction that often raises questions is whether premiums paid for Life Insurance Corporation (LIC) policies are covered under this section. The answer is yes, LIC premiums do qualify for deductions under Section 80C, but specific conditions and limits apply. Let us break down how LIC premiums qualify for tax deductions, the key eligibility criteria, and the nuances that taxpayers should be aware of.
Table of Contents:
Is LIC Premium Eligible for Deduction Under Section 80C?
Yes, LIC premiums are eligible for deduction under Section 80C of the Income Tax Act, provided certain conditions are met. The policy must be in the name of the taxpayer, their spouse, or children, and the taxpayer must be the one paying the premium. The deduction applies to premiums paid for life insurance policies, including ULIPs and other similar schemes. However, premiums paid for health cover components of life insurance plans are not eligible under Section 80C but may qualify under Section 80D. Additionally, the total premium eligible for deduction must not exceed the limits specified, and any reversal of deductions may occur if the policy is surrendered or withdrawn before the lock-in period.
How LIC Premiums Qualify for Section 80C Deductions
LIC premiums are eligible for deductions under Section 80C of the Income Tax Act, but to qualify, the premiums must meet certain criteria. These include the following:
Ownership: The policy must be in the name of the taxpayer, their spouse, or children. If the taxpayer is paying the premiums for a policy owned by someone else (for example, a friend), the deduction is not allowed.
Payment: The premium must be paid by the taxpayer who is claiming the deduction. For example, if a taxpayer is paying premiums for their child's LIC policy, they can claim the deduction only if the policy is in their name. If the policy is in the child’s name, the deduction cannot be claimed.
Policy Type: Deductions are available for premiums paid on life insurance policies, including pure life insurance policies, ULIPs (Unit Linked Insurance Plans), and even some mixed insurance policies offering both life cover and savings. However, health cover components within life insurance policies do not qualify for Section 80C but can be claimed under Section 80D.
Premium Limits: For some LIC policies like Jeevan Labh, the premium eligible for deduction must not exceed 10% of the sum assured.
Key Conditions for Claiming LIC Premium Under Section 80C
To claim the deduction for LIC premiums under Section 80C, the following conditions must be met:
Condition | Details |
Policy Ownership | The policy must be in the name of the taxpayer, their spouse, or children. |
Premium Payment | The taxpayer must be the one paying the premiums, even if the policy is for a family member. |
Eligible Premiums | Premiums paid on life insurance policies, including ULIPs and mixed policies offering life cover and savings, qualify for deduction. |
Limits on Premium | The premium must not exceed 10% of the sum assured for certain policies (like Jeevan Labh). |
Payment Mode | Payment must be made via an acceptable mode (cheque, bank transfer, etc.). Cash payments are not eligible. |
What Does Section 80C Cover Regarding LIC?
Section 80C covers a wide range of investment and expense options, and LIC premiums are one of them. Specifically, the section allows deductions for:
Life Insurance Premiums: Premiums paid on pure life insurance policies and unit-linked insurance plans (ULIPs) are eligible for tax deduction.
Maturity Benefits: If the policy pays out maturity benefits, these are not taxed under Section 10(10D), provided the premium paid does not exceed 10% of the sum assured.
Surrendered Policies: If a policy is surrendered before maturity, the premiums deducted earlier may be added back to taxable income for that year.
Note: Health cover components of life insurance policies are not eligible for deduction under Section 80C but can be claimed under Section 80D.
Is LIC Premium Deduction Available Under the New Tax Regime?
Under the new tax regime, which was introduced to provide taxpayers with lower tax rates but without deductions, LIC premium deductions under Section 80C are not available.
Old Tax Regime | New Tax Regime |
Deductions available for LIC premiums under Section 80C | No deductions for LIC premiums |
Taxpayer can claim the full ₹1.5 lakh limit for 80C deductions | No deduction benefits for LIC premiums |
Key Takeaway: Taxpayers opting for the new tax regime must forgo the benefits of Section 80C, including LIC premium deductions.
How to Calculate Your LIC Premium Deduction Under Section 80C
The calculation of LIC premium deduction under Section 80C is relatively simple. Here's a breakdown:
Identify Eligible Premiums: Determine the premiums paid on life insurance policies (excluding health components).
Check for Limits: Ensure that the total premium paid does not exceed 10% of the sum assured for policies like Jeevan Labh.
Claim Maximum Deduction: The maximum deduction under Section 80C is ₹1.5 lakh per financial year. If the total premiums paid across all eligible policies (LIC or otherwise) do not exceed this limit, the taxpayer can claim the full amount.
Example | Premium Paid | Eligible for Deduction |
LIC Premium for Taxpayer | ₹25,000 | Yes, deductible under 80C |
LIC Premium for Spouse | ₹20,000 | Yes, deductible under 80C |
LIC Premium for Child | ₹15,000 | Yes, deductible under 80C |
Common Scenarios Where LIC Premium Deduction Applies
Scenario | Eligible for Deduction |
Paying LIC premiums for your own life | Yes |
Paying LIC premiums for your spouse's life | Yes |
Paying LIC premiums for your child's life | Yes, as long as the policy is in your name |
Paying premiums for a friend or relative | No |
Premium paid via cash | No, must be paid through acceptable modes like cheque or bank transfer |
What Happens If You Surrender Your LIC Policy Early?
If an LIC policy is surrendered before the lock-in period, any deductions previously claimed under Section 80C are reversed. This means:
The total premiums paid in the earlier years are added back to the taxpayer’s income in the year of surrender.
This may lead to an increase in the taxable income for that year, potentially resulting in a higher tax liability.
Note: If the policy is fully paid up or lapses due to non-payment, no reversal of deductions occurs, but the premiums may no longer be eligible for deductions in the future.
Is LIC Premium Deduction Available for Health Insurance Components?
The health insurance component of a life insurance policy is not eligible for deduction under Section 80C. However, this component may qualify for deductions under Section 80D.
Section 80C | Section 80D |
Life insurance premiums | Health insurance premiums (part of life insurance) |
So, while life insurance premiums qualify for Section 80C deductions, the health cover portion should be claimed under Section 80D, provided the criteria for Section 80D are met.
How to Claim LIC Premium Deduction: Step-by-Step Process
Ensure Eligibility: Confirm that the policy is in the taxpayer’s name or their family member’s name and that the premium is paid by the taxpayer.
Fill the ITR: When filing the Income Tax Return (ITR), enter the amount of LIC premium paid under the Section 80C deduction field.
Submit Documentation: While filing, ensure you have the policy details (policy number, premium amount, and payment mode) for verification if needed.
Keep Proofs: Maintain receipts and proof of premium payments (bank statements, cheque receipts) for future reference in case of any audits or queries.
How LIC Premiums Compare to Other Section 80C Investments
While LIC premiums qualify for Section 80C deductions, they are just one of many tax-saving options available. Here’s how they compare to other common investments:
Investment | Deduction Limit | Eligibility |
LIC Premiums | ₹1.5 lakh | Taxpayer, spouse, or child can be the policyholder |
Public Provident Fund (PPF) | ₹1.5 lakh | Must be in the taxpayer's name |
National Savings Certificate (NSC) | ₹1.5 lakh | Must be in the taxpayer's name |
5-Year Fixed Deposit (FD) | ₹1.5 lakh | Must be in the taxpayer's name |
National Pension Scheme (NPS) | ₹1.5 lakh (with an additional ₹50,000) | Must be in the taxpayer's name |
LIC premiums are one of the most secure investments under Section 80C, offering life coverage along with tax-saving benefits.
Conclusion
LIC premiums provide an effective way for taxpayers to reduce their taxable income, while also securing their financial future with life insurance. However, it's crucial to ensure the policy meets all eligibility criteria, including ownership, premium payment, and type of policy, to avail of the deductions. While deductions are available under the old tax regime, they are not applicable under the new tax regime. Understanding these nuances can help taxpayers make informed decisions while filing their tax returns.
FAQs
Can I claim LIC premiums paid for my adult son?
No, you cannot claim deductions for premiums paid for an adult child’s LIC policy. Section 80C allows deductions only for premiums paid on policies in the taxpayer’s name, their spouse’s name, or their child’s name if the child is a minor. For an adult child, the policy must be in the taxpayer's name to qualify for the deduction.
What is the maximum deduction I can claim for LIC premiums?
The maximum deduction available under Section 80C for LIC premiums is ₹1.5 lakh per financial year. This is the total limit for all eligible investments under Section 80C, which includes LIC premiums, PPF, NSC, and other qualifying instruments.
Are LIC premiums eligible under the new tax regime?
No, under the new tax regime introduced from FY 2020-21, taxpayers who opt for lower tax rates do not get the benefit of deductions available under Section 80C, including LIC premium deductions. The new regime offers reduced tax rates but without deductions or exemptions.
How do I calculate the LIC premium deduction?
To calculate your LIC premium deduction, total the premiums paid for eligible policies, keeping in mind that the amount must not exceed 10% of the sum assured for policies like Jeevan Labh. The maximum claim under Section 80C, including LIC premiums, is ₹1.5 lakh. Ensure you are claiming the deduction for premiums paid by you and for policies in your name, or your spouse's or children’s names.
Can I claim LIC premiums for my spouse’s life insurance policy?
Yes, you can claim deductions for premiums paid for your spouse’s life insurance policy, as long as the policy is in the spouse's name and the premiums are paid by you. Section 80C allows you to claim deductions for policies taken on the life of the taxpayer, their spouse, or children.
What happens if I surrender my LIC policy?
If you surrender your LIC policy before it matures, any deductions previously claimed under Section 80C for the premiums paid are reversed. This means that the premiums deducted in earlier years will be added back to your income for the year of surrender, increasing your taxable income for that year.
Can I claim health insurance premiums under Section 80C?
No, health insurance premiums are not eligible for deduction under Section 80C. However, if your life insurance policy includes a health insurance component, the health cover portion must be claimed under Section 80D. Section 80D specifically covers health insurance premiums, including those paid for the taxpayer, their family, and dependents.
Is there a limit on the amount of LIC premium I can claim?
While the total amount of LIC premiums you can claim under Section 80C is part of the ₹1.5 lakh limit for all eligible investments combined, there may also be limits on specific policies like Jeevan Labh, where the premium must not exceed 10% of the sum assured to qualify for deduction.
Are ULIPs eligible for deduction under Section 80C?
Yes, premiums paid for ULIPs (Unit Linked Insurance Plans) are eligible for deduction under Section 80C. However, the same rules apply as with other LIC policies: the policy must be in the taxpayer's name or their spouse/child’s name, and the premium should not exceed 10% of the sum assured for certain plans.
How do I claim the LIC premium deduction while filing taxes?
To claim the LIC premium deduction, you need to fill out the details in your Income Tax Return (ITR) form. In the ITR, you will find a section to declare your Section 80C investments. Enter the total LIC premiums paid in the relevant field. Ensure you have the necessary documents (e.g., premium receipts, policy details) for reference if required by the tax department.
Can I claim LIC premiums for policies in my children’s names?
Yes, if the policy is in your child’s name and the premiums are paid by you, you can claim the deduction for the premiums under Section 80C. The key condition is that the policy must be in the name of the taxpayer, their spouse, or their children, and the premiums must be paid by the taxpayer.
What are the tax implications if I withdraw my LIC policy early?
If you withdraw your LIC policy before its maturity, any deductions previously claimed will be reversed. This means the total premiums paid for that year, which were earlier claimed as deductions, will be added back to your income and taxed accordingly. Additionally, if the policy is surrendered, you may lose the maturity benefits that could have been exempt under Section 10(10D), unless the premium paid is more than 10% of the sum assured.
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