Question

During the Previous Year 2019-20, an assessee paid an insurance premium of Rs.25,000 on the life of the spouse (policy taken on 1-4-2015 [1 April 2015]) (Assured Value Rs. 2,00,000).

What is the eligible amount qualifying for deduction under Section 80C for the Assessment Year 2020-21?

1. Rs. 5000
2. Rs. 45000
3. Rs. 20000
4. RS. 25000

Answer 1

Correct Answer - Option 3 : Rs. 20000

Section 80C of the Income-tax Act allows a deduction for the investment made in PPF, EPF, LIC premium, Equity-linked saving scheme, principal amount payment towards home loan, stamp duty, and registration charges for the purchase of property, Sukanya Samriddhi Yojana (SSY), National saving certificate (NSC), Senior citizen savings scheme (SCSS), ULIP, tax saving FD for 5 years, Infrastructure bonds, etc.

Overall deduction u/s 80C (along with deduction u/s 80CCC & 80CCD) allowed is up to Rs. 1,50,000.

Restriction on amount of insurance premium deduction with respect to the capital sum assured:

• The deduction is restricted to 20% of capital sum assured in respect of policies issued on or before 31-3-2012 and 10% in case of policies issued on or after 1-4-2012.
• So, here in the given question policy was taken on 1-4-2015 [1 April 2015]) and the assured value of the policy was Rs. 2,00,000. 
• Therefore, the amount eligible for deduction will be 10% of 2,00,000 i.e. Rs. 20,000