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Life insurance: The smiles are back!

March 01, 2005 06:42 IST
Last Updated: March 01, 2005 19:16 IST

Long live, Chidambaram! These will be the words on the common man's lips. This is because Chidambaram has done enough in this year's budget to put the smile back on the layman's face.

Here, we take a look at how this year's Budget has impacted the individual.

Section 88 benefits have been scrapped. This means that tax rebate under Section 88 will not be applicable to an individual anymore. It has now been replaced by Section 80CCE.

Under Section 80CCE, one can now invest a sum of up to Rs 100,000 in investment avenues like NSC, PPF, infrastructure bonds and/or life insurance and the same will be deducted from an individual's taxable income.

In our view this is a welcome move. For one, there was a limit of Rs 70,000 on life insurance premium to avail of Section 88 benefits. This ceiling has now been raised to Rs 100,000.

An individual can now allocate an enhanced amount to insure himself adequately and still get a tax benefit. He can also manage his portfolio better without having to worry about tax benefits.

For example, he can increase his insurance coverage by buying a term plan (pure risk cover plan) and allocate a sizable amount from his portfolio towards retirement planning.

The changes in this year's budget have also come as a welcome move for individuals whose annual earnings exceed Rs 500,000.

Until now, these individuals did not benefit from the tax saving on account of paying a life insurance premium. But this year's budget has removed this anomaly and they too can now look at life insurance upto a ceiling of Rs 100,000 premium to avail of tax benefit.


Benefits available under Section 80CCC will now be available under the garb of Section 80CCE. This means that the earlier limit of Rs 10,000 to avail of Section 80CCC benefit now stands enhanced to Rs 100,000.

Till date, pension investments were mostly driven by Section 80CCC benefits. After this budget, we should see retirement planning take a front seat, as pension will play a more important role in your insurance portfolio.

Section 10(10D) has not been tampered with. The benefits under this section are still available so individuals need not worry about death or maturity benefits while buying life insurance.

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Budget 2005-06: Complete Coverage

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