Term Insurance Tax Benefits Under Sections 80C, 80D and 10D
Learn everything about term insurance tax benefits under Section 80C and Section 80D of the Income Tax Act 1961
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Despite your hard work to achieve your dreams and take care of your family, you watch your money slip due to taxes when the year ends.
There are many methods to reduce taxes through various sections of the Income Tax Act. Out of all the choices you have, term insurance is a useful method for saving taxes. It provides protection for your family from financial difficulties in the event of your passing. This pure protection plan offers various advantages, including life coverage, death benefit, peace of mind, and tax advantages.
What is Term Insurance
Term insurance is a popular type of life insurance policy that provides coverage for a specified period, known as the “term” of the policy. It is intended to offer funds for your family members or dependents in case of your demise while the policy’s term is still in force. Here are the key features of term insurance:
Coverage Period
Term insurance provides financial security for a determined time, such as 5, 10, 20, or even 30 years. If the insured person dies during the term, the insurance company pays the nominee a benefit as per the deceased’s policy.
Pure Protection
In contrast to other life policies, such as endowment or whole life, term insurance mainly involves risk management for a specific period.
Affordability
Term insurance premiums are normally pocket-friendly than other forms of life insurance policies.
Customisation
Critical illness coverage, accidental death benefits, and waiver of premiums in case of disability are some of the common term insurance riders.
Understanding the Income Tax Act
The Income Tax Act is a legal framework that regulates taxation of individuals, businesses, and other entities in India. The Act lays down rules and regulations for filing tax returns, paying taxes, and claiming tax deductions and exemptions. The Act is regularly updated with amendments and changes to keep pace with the evolving economic and social conditions of the country.
The Income Tax Act is a comprehensive law that governs income tax in India. It is divided into several sections, each dealing with a specific aspect of taxation.
Term Insurance Comes Under Which Income Tax Act 1961?
Term insurance falls within the Income Tax Act 1961 provisions, specifically under Section 80C, Section 80D, and Section 10(10D).
Term Insurance Tax Benefits under Section 80C
Under Section 80C of the Income Tax Act, you can claim a tax deduction of up to Rs. 1.5 lakh on premiums paid for your term insurance policies.
Term Life Insurance Tax Benefits under Section 10 (10D)
Section 10(10D) of the Income Tax Act states that the money the designated person receives upon the policyholder's death is tax-free.
Tax Benefits on Term Life Insurance Riders Under Section 80D
Policyholders who have opted for term insurance riders, such as critical illness, surgical care, or similar covers, are eligible for deductions up to Rs. 25000.
Term Insurance Tax Exemptions under Section 80C
Section 80C of the Income Tax Act allows taxpayers to claim deductions for investments and expenses made in a financial year. Some of the investments and expenses that qualify for deduction under this section include:
Term Insurance Premium Tax Benefit:
| Equity-Linked Savings Scheme (ELSS):
|
Public Provident Fund (PPF):
| National Pension Scheme (NPS):
|
Other Tax-saving Investments under Section 80C:
Voluntary Provident Fund (VPF)
Tax-saving Fixed Deposits (FDs) in Banks and Post Offices
Senior Citizen Savings Scheme (SCSS)
Home loan principal repayment
Tuition fees for children's education
Conditions to Claim Term Plan Tax Benefits under Section 80C
The annual premium paid should not exceed 10% of the actual assured amount. If it is more than 10%, the deduction is calculated proportionately.
For policies issued before March 31, 2012, taxpayers can claim term insurance deductions under Section 80C, but only if the annual premium paid does not exceed 20% of the sum assured. This condition ensures that tax benefits are granted within specific limits set by the Income Tax Act.
Who can Claim Tax Benefits Under Section 80C?
To be eligible for tax benefits under Section 80C, an individual must be a taxpayer in India, either a resident or a non-resident.
The following individuals can claim deductions under Section 80C.
Any Indian resident with taxable income is eligible for deductions under Section 80C.
Must be a resident Indian individual or a Hindu Undivided Family (HUF).
Senior citizens (60 years and above) with taxable income are also eligible for deductions under Section 80C.
NRIs who earn income in India are also eligible for deductions under Section 80C.
Must have a Term Insurance policy in their name or that of their spouse or children
Must not have surrendered the policy before the end of term C.
Term Insurance Tax Benefits under Section 10 (10D)
Section 10(10D) of the Income Tax Act states that the money the designated person receives upon the policyholder's death is tax-free. Additionally, the sum assured upon maturity is also tax-free. However, this exemption applies if certain conditions are met:
The annual premium for your term insurance should be less than 10% of the sum assured
If the payout amount is over Rs. 1,00,000, and the policyholder’s PAN is available, a TDS (Tax Deducted at Source) of 1% will be charged.
Term Insurance Tax Benefits Under Section 80D
Although Section 80D of the Income Tax Act primarily allows tax deductions on premiums paid for health insurance policies, term insurance policyholders with Critical Illness cover, Surgical Care cover, and other similar covers can save up to Rs. 25000 on premiums paid. The term insurance deduction limit for senior citizens' parents is increased to Rs. 50,000.
You can opt for ACKO Life Critical Illness Benefit Rider to add more protection for your term insurance. The rider covers 21 critical illnesses, including life-threatening common illnesses among women, such as breast cancer, cervical cancer, fallopian cancer and ovarian cancer.
List of Covered Critical Illnesses
Cancer of Specified Severity | Myocardial Infarction (First Heart Attack Of Specific Severity) |
Open Chest CABG | Open Heart Replacement Or Repair Of Heart Valves |
Coma Of Specified Severity | Kidney Failure Requiring Regular Dialysis |
Stroke Resulting In Permanent Symptoms | Major Organ /Bone Marrow Transplant |
Permanent Paralysis Of Limbs | Motor Neuron Disease With Permanent Symptoms |
Multiple Sclerosis With Persisting Symptoms | Benign Brain Tumor |
Blindness | Deafness |
End Stage Lung Failure | End Stage Liver Failure |
Loss Of Speech | Loss Of Limbs |
Major Head Trauma | Primary (Idiopathic) Pulmonary Hypertension |
Third Degree Burns |
|
Choosing the Right Term Insurance Plan for Maximum Tax Benefits
Many individuals opt for term insurance plans for several reasons. It serves as a pure protection plan that ensures financial security. Apart from being affordable and customisable, investing in a term plan also offers tax-saving benefits. If you're considering purchasing a term plan primarily for tax advantages, here are essential factors to consider:
Ensure your plan offers flexible premium payment options that are eligible for up to Rs. 1.5 lakh deduction per annum.
Select a longer policy tenure to provide extended financial security to your family or nominees.
Enhance coverage by adding riders to your term plan, such as critical illness surgical care for tax benefits under Section 80D.
Frequently Asked Questions (FAQs)
Here’s a list of common questions and answers related to Term Insurance and Income Tax.
Who is eligible for tax benefits under Section 80C of the Income Tax Act for Term Insurance policies?
An Indian resident can easily claim term Insurance premium tax benefits. The policy should be in their name or their spouse's or children's name, and they should be the policyholder and payer of the premium. A policy should not be surrendered before its expiration date.
What is the maximum limit on tax benefits under Section 80C for Term Insurance policies?
Section 80C limits tax benefits to one and a half lakh rupees per financial year.
Can Section 80C tax benefits be claimed for other investments?
Yes, tax benefits under Section 80C are not limited to Term Insurance premiums but also other investments.
Are death benefits received under a Term Insurance policy taxable?
No, the death benefit is exempt from income tax under Section 10(10D) of the Income Tax Act, as per applicable terms and conditions.
What is the tax deduction limit for senior citizens under 80D?
The maximum tax deduction under Section 80D for premium payments for senior citizens is Rs 50,000 per year.
Is Term Insurance Covered Under 80C?
Yes, individual taxpayers can save tax on term insurance premiums paid under Section 80C of the Income Tax Act.
Term insurance comes under which section 80C or 80D?
Term insurance tax benefits come under Section 80C. Also, term insurance policyholders with Critical Illness cover, Surgical Care cover, and similar additional covers can also save taxes on premiums paid under section 80D of the Income Tax Act.
Disclaimer: The content on this page is generic and shared only for informational and explanatory purposes. It is based on industry experience and several secondary sources on the internet, and is subject to changes.
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