01 August 2024
In the context of income tax deductions for insurance premiums, you can only claim the premium amount as a deduction, not the late fee or any other charges.
Here’s a summary of how to handle this:
### **Income Tax Deduction on Insurance Premiums:**
- **Premium Amount:** Only the actual insurance premium paid is eligible for deduction under Section 80C of the Income Tax Act, which covers premiums paid for life insurance policies.
- **Late Fee or Charges:** Late fees, penalty charges, or any additional costs incurred due to delayed payment are **not** eligible for tax deductions.
### **Example:**
If you were required to pay ₹10,000 as insurance premium and an additional ₹500 as late fee, you can only claim the ₹10,000 premium amount for deduction under Section 80C.
### **Journal Entry Example:**
If you paid ₹10,000 as premium and ₹500 as late fee:
1. **Payment of Premium and Late Fee:**
**Debit:** Insurance Expense (or Life Insurance Premium) **Debit:** Late Fee Expense **Credit:** Bank Account
**Example Entry:**
```plaintext Dr. Insurance Expense 10,000 Dr. Late Fee Expense 500 Cr. Bank Account 10,500 ```
- **Insurance Expense:** Represents the premium amount. - **Late Fee Expense:** Represents the late fee paid. - **Bank Account:** Represents the total amount deducted from the bank.
**Note:** Ensure to keep proper documentation for both the premium and any additional charges for your records, but only the premium amount will be considered for tax deductions.
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