Guide on Tax Deductions on Family Investments

Whether it's a term insurance plan, ULIP (Unit Linked Insurance Plan), or a savings plan, tax benefits can have a very important role in financial planning. Investments like life insurance provide security and wealth generation. But all tax benefits are dependent on two factors, who initiates the payments and whose name is on the policy document. 

You may be wondering if you can claim deductions on investments made by your parents or spouse. This blog aims to helps you learn about the deductions you can claim on your family’s investments. 

Can You Claim Deductions on Parents’ Investments? 

The tax benefits on investments made in your parents' name may vary. Let's explore the deductions that you can claim to enhance your savings. 

What You Can Claim 

    1. Health Insurance Premiums: 

Under Section 80D, if someone pays for his/her parent’s health insurance, they are able to claim the deductions on the insurance premiums. The deduction amount that can be claimed for parents below 60 years is ₹25,000 and for parents above the 60 is ₹50,000. 

     2. Medical Expenses for Senior Citizen Parents: 

Under Section 80D, you can claim a deduction for medical expenses incurred on behalf of your senior citizen parents if they do not have a health insurance policy.  

The maximum deduction allowed is ₹50,000 per financial year, which includes both health insurance premiums and out-of-pocket medical expenses. 

     3. Preventive Health Check-ups: 

You can claim a deduction amount of up to ₹5,000 under section 80D for preventive health check-ups for your parents within the overall health insurance limit. 

What You Cannot Claim 

     1. Life Insurance & Term Insurance Premiums for Parents: 

Under 80C, you can't claim the deductions on the life insurance policy or term insurance plan that you buy for your parents.  includes both health insurance premiums

     2. ULIP Investment in Parents’ Name: 

If a ULIP policy is taken in your parent’s name, you can't claim the deduction amount under Section 80C. 

     3. Investment Plans in Parents’ Name: 

Under section 80C or 10(10D), you can't claim the tax deductions for the premiums paid for investment insurance, unit-linked investment plans, saving plans, or guaranteed income plans in your parents' names. 

     4. Maturity Proceeds from Parents’ Policies: 

Maturity proceeds, or payouts received by your parents from life insurance, ULIP investments, or term insurance policies are not eligible for tax deductions under Section 80C or Section 10(10D). 

Can You Claim Deductions on Spouse’s Investments? 

Tax-saving investments are a necessary part of financial planning, and many people invest in life insurance plans, term insurance policies, ULIPs, and other investment plans for their spouse. However, you can claim the deductions on only a select few investments.  

What You Can Claim 

     1. Life Insurance Premiums Paid for Your Spouse: 

Under Section 80C, if you pay the premium for a life insurance policy or a term insurance plan for your spouse, you can claim the deduction. The maximum allowed deduction per financial year is ₹1.5 lakh. 

     2. Health Insurance Premiums for Your Spouse: 

Under Section 80D, if you pay for a health insurance policy taken under your spouse's name, you can claim the deduction amount. The deduction amount is ₹25,000 if your spouse is below 60 years and ₹50,000 if your spouse is a senior citizen above 60 years of age. 

     3. Home Loan: 

You can claim a deduction of up to ₹1.5 lakh under Section 80C for principal repayment on a jointly owned home loan with your spouse. Under Section 24(b), you can also claim up to ₹2 lakh per year on interest if your spouse is a co-owner and co-borrower. 

What You Cannot Claim 

     1. Investments Made by Your Spouse from Their Income: 

If your spouse pays for a life insurance policy, ULIP, savings plan , or investment insurance using their own income, you won't be able to claim the deductions. 

     2. Maturity Proceeds Received by Your Spouse: 

The payouts received from a life insurance policy, term life insurance policy, or ULIP investment by your spouse will be counted as their income. In this case, you can't claim the tax deductions on behalf of them. 

     3. Gifts to Spouse:  

If you give money to your spouse and they invest it in life insurance, ULIPs, or any savings plan, you cannot claim a deduction on those investments. Additionally, any returns or maturity proceeds from such investments will be taxed as your spouse’s income, not yours. 

Key Sections Allowing Deductions for Family Members  

Section	Deductions Eligible For	Relationship	Deduction Limit
Section 80C	(I) Life Insurance  (ii) ULIP  (iii) Term Insurance, etc	(I) Self  (ii) Spouse  (iii) Children	₹1.5 lakhs/financial year.
Section 80D	(I) Health insurance premiums    (ii) Preventive health check-ups	(I) Self  (ii) Spouse  (iii) Children  (iv) Parents	₹25,000 (for insured below 60 years).  ₹50,000 (for senior citizen insured).
Section 80DD	(I)Medical treatment (ii) Rehabilitation  (iii) Maintenance of a disabled dependent	(I) Siblings   (ii) Spouse  (iii) Children  (iv) Parents	₹75,000 (for a disability score of 40-80%.)  ₹1.25 lakh (for a disability score of more than 80%).
Section 80DDB	Expenses on medical treatment of diseases like cancer, chronic kidney disease, etc.	(I) Siblings   (ii) Spouse  (iii) Children  (iv) Parents  (v) Self	₹40,000 (for patients below 60 years).  ₹1 lakh (for senior citizen patients).
Section 24(b)	Interest paid on a home loan.	(I) Self  (ii) spouse (joint owner)  (iii) Co-borrower	Up to ₹2 lakh/year for a self-occupied house.
Section 80E	Interest paid on a higher study purpose education loan.	(I) Self  (ii) Spouse  (iii) Children	No upper limit.
Section 80G	Donations made to registered charitable organisations.	Taxpayers who pay the donation amount.	50-100% of the donation amount.

Conclusion 

Optimising your savings by claiming tax benefits on investments made by your spouse or parents can be a smart financial move. However, deductions can only be claimed on certain investments within specific limits. Understanding each relevant section and its details will help you maximise your deductions while securing your family’s financial future.