Are top ups on life insurance policies eligible for 80C deductions?

by Manshu on April 25, 2013

in Tax

Harshit Shah posted the following comment a few days ago:

Harshit Shah April 17, 2013 at 1:42 pm [edit]


First of all i would like to thank you to make this website which is guiding investor for better investing.

I need your support in understanding none aspect of insurance: Top-up premium in life insurance.

I have taken life insurance policy Kotak invest maxima with five years premium payment and 25 years policy term. I have invested first year premium of one lack rupees. I still have cash surplus which needs to be invested. As per policy document i am free to make top-up up to 10 X first year premium .ie. 10 lacks. There is no top-up premium allocation charge under this policy. The top-up premium shall be lock-in for five years. The top-up premium will require 1.1 to 1.25 times insurance cover.

My question is: What are tax implication if i invest 1 lack rupees additional as top-up and withdraw that amount after five years.?

My request to you is if you can post an article on “Top-up in life insurance it’s benefits and tax implication”

Thanks & regards,
Harshit Shah

Kotak Invest Maxima is covered by 80C and I couldn’t find anything that excludes top up premiums from being considered for 80C deductions so to the best of my knowledge, the money you spend on a top up of this policy should also be eligible for tax deduction.

I also don’t think it will make any difference when you withdraw it after five years.

This plan is also covered under 10 10(D) which states that the amount you receive from the policy will be tax free as long as the premium is less than 10% of the amount assured in every year you pay the premium. If you pay the top up in a certain year is this clause getting violated and if so will the tax benefit under 10 10(D) be removed?

I don’t know anything about this and if someone can leave a comment about it that will be much appreciated.

Also, please note that this post has nothing to do with whether you should invest in Kotak Invest Maxima to begin with or not – I’m just trying to answer the question of the tax angle.

{ 6 comments… read them below or add one }

Uday April 25, 2013 at 7:02 am

In any year, 80c is available only for the premium paid up to Rs.1 lakh is eligible.


Shashank K S April 25, 2013 at 3:41 pm

Under the Finance Act 2012 the exemption under Sec 10 (10D), on benefits you receive under life insurance policies issued on or after 1st April, 2012, shall be available only if the premium payable in any of the years is not more than 10% of the Sum Insured.

I would like to know when the policy was issued. if it is before FY’13 it is covered under EEE regime anyhow.


Manshu April 25, 2013 at 8:22 pm

Does the premium payable include the top up value too Shashank?


CA Poonam April 29, 2013 at 11:19 am

Harshit, you can get the deduction provided the premium is not more than 20% of sum assured and the sum assured does not include any premium agreed to be returned or any benefit by way of bonus.


CA Poonam April 29, 2013 at 11:20 am

Harshit further note that 20% provision is changed to 10% w.e.f. 01/04/2013


Annapurna April 29, 2013 at 12:23 pm

As far as I know, top ups are eligible for 80 C rebate, but there are restrictions on the amount of top up allowed. Top ups can be made only for fully paid up policies, and it cannot exceed 25 % of the total value of all the premiums paid till date, in case the life cover has to be kept the same. i.e if you pay Rs 1 Lakh annual premium for a ULIP with a 10 lakh cover and have paid 4 premiums, the maximum top up amount allowed would be 50,000/-, which is 25 % of 4 lakhs, the total premium paid. If one wants to top up for a higher amount, the life cover would have to be increased accordingly.


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