LIC premiums can save you significant tax — but only if you claim correctly. Here's the complete tax-planning guide for salaried Indians buying LIC policies.
Three Tax Sections to Know
Section 80C — Deduction on Premium
You can claim the entire premium paid (including GST) for LIC policies as a deduction under Section 80C, up to a combined limit of ₹1,50,000 per financial year.
The 80C limit is shared with EPF, ELSS, PPF, NSC, home loan principal, tuition fees, etc. Plan allocations to maximise the full ₹1.5L benefit.
Allowed for policies in your name, your spouse's, your children's, and your parents' (if they are dependents).
Section 80CCD(1B) — Extra NPS Deduction (Not LIC)
Note: 80CCD(1B) gives an additional ₹50,000 deduction for NPS contributions, not LIC. Many LIC policyholders combine LIC 80C + NPS 80CCD(1B) to maximise their ₹2,00,000 tax-saving ceiling.
Section 80D — Health Insurance (Not LIC)
80D is for health insurance premiums (mediclaim), not life insurance. If you have a separate health cover, you can save an additional ₹25,000–₹75,000.
Section 10(10D) — Tax-Free Maturity / Death Claim
The maturity amount and the death claim amount from an LIC policy are fully tax-free in the hands of the recipient, provided:
- Annual premium ≤ 10% of Sum Assured (true for all standard LIC plans)
- Aggregate premium in the year does not exceed ₹5 lakh for policies issued after April 2023 (for higher tax-free exemption)
- The policy is not assigned to a non-relative
Survival benefits under money-back plans are also tax-free under 10(10D).
A Realistic Tax-Saving Example
Mr Sharma, 30, salary ₹10 lakh/year, 30% tax bracket:
- LIC endowment premium: ₹50,000/year → 80C saving: ₹15,000 (30% of ₹50,000)
- Home loan principal: ₹1,00,000/year → 80C saving: ₹30,000
- NPS contribution: ₹50,000 → 80CCD(1B) saving: ₹15,000
- Mediclaim premium: ₹25,000 → 80D saving: ₹7,500
- Total tax saved: ₹67,500 (out of total ₹2 lakh possible)
How to Show LIC in Your ITR
- Collect the annual premium receipt from the LIC portal
- Add it to your Form 12BB / ITR Schedule 80C
- Add to employer declaration at the start of the year
- Keep the receipt for 8 years (IT assessment window)
Common Mistakes to Avoid
- ❌ Buying LIC just for tax saving — the return on endowment isn't great. The 80C benefit is a bonus, not the reason.
- ❌ Forgetting to claim GST portion — only the basic premium is tax-deductible, GST is also part of the 80C amount.
- ❌ Forgetting to update nomination — leads to ITR complications for nominees.
- ❌ Not surrendering even when needed — surrender can make earlier 80C claims taxable.