Tax Query: Can I continue with my LIC policy under the new tax regime?

I bought a life insurance policy five years ago. The term of the policy is 20 years and the sum assured is Rs 8 lakh. My annual premium payment is Rs 32,500. Apart from this, I make a yearly contribution to my EPF account of Rs 21,600. I understand that till FY 2019-20, I can claim a tax deduction for the payments. Also, from FY 2020-21, I will not get a tax deduction under the new tax regime. Should I continue the insurance payment under the new tax regime?

The new tax regime available from FY 2020-21 is optional. You can choose between the existing and the new tax regime after calculating the income tax payable under both regimes. In a case you find the new regime beneficial, you cannot claim a tax deduction for your payments. Here, it is essential to note that in addition to the tax deduction, you can also claim tax-exemption on the maturity proceeds of your LIC policy. Such tax-exemption continues to be available under the new tax regime. Hence, while you cannot claim a tax deduction for the premium payment, you can continue making payments and obtain tax-free lumpsum funds on maturity.

Also Read: Tax Query: What is the tax benefit of investing in GOI bond instead of FD?

I am making EMI payments on the home loan of my self-occupied house. I started making the EMI payments of Rs 40,000 per month from November 2019. I understand I can claim a deduction for interest payment and the principal repayments till 31 March 2020. The government has extended the time until 30 June 2020 for tax-saving investments. Hence, I wish to know whether I can claim a deduction in FY 2019-20 for interest and principal repayments I make from 1 April to 30 June 2020?  

The deduction for housing loan EMIs is available only on an accrual basis. You can claim a deduction in FY 2019-20 only for the EMIs that are due by 31 March 2020. That means you can claim a deduction only for the interest which falls due as part of outstanding EMIs as on 31 March 2020. Similarly, you can claim a deduction only for principal repayments owing as part of outstanding EMIs as on 31 March 2020. 

The relief by way of extension of time is only for obligations that were due as on 31 March 2020. Also, the income tax law allows a deduction for EMIs only on an accrual basis. The EMI for the period April to June 2020 fall due after 1 April 2020. Hence, you can claim the deduction for the interest and principal in the FY 2020-21, and not in FY 2019-20. 

For any clarifications/feedback on the topic, please contact the writer at sweta.dugar@cleartax.in

You May Also Like

Tax Query: Can NRIs deposit in their existing PPF account and claim tax deduction?

I am a resident of India living in India and am a…
Tax

Tax Query: Can I claim capital gains exemption on investments in bonds?

I had sold a piece of land under a sale deed registered…

Tax Query: How much money can be gifted to parents under IT laws?

I want a HUF in my name. Who is eligible to contribute…