Term Insurance Comes Under Which Section: 80C or 80D?

One kind of life insurance that provides coverage to the policyholder is term insurance. However, there is a time limit on how long this coverage is valid. The term insurance provider pays the insured money to the beneficiary if the policyholder passes away within this time frame. Before purchasing term insurance, one must know a few terms and conditions. In addition, term insurance offers several tax advantages under sections 80C, 80D, and 10D. In this post, we will discover more about these advantages and how to obtain them.

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Table of Content

Term Insurance Tax Benefit Section 80C

Term Insurance Tax Benefit Section 80D

Exclusions Under Section 80D 

Term Insurance 80C and 80D Benefits

Eligibility Criteria to Claim Tax Benefits on Term Insurance

Conclusion

Most Asked Questions

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Term Insurance Tax Benefit Section 80C

Tax deductions are available for premiums paid toward the maintenance of your term insurance policy under Section 80C. All premiums paid during a fiscal year may only be deducted in that fiscal year, as the deductions are on a payment basis. Hindu Undivided Families (HUFs) and individuals are eligible for this tax deduction. Individuals may purchase a term insurance policy in their names or the names of their spouse and dependent children. According to income tax regulations, you can only claim a maximum of Rs. 1.5 Lakh. You can have a term plan that covers you, your spouse, and any dependent children. Tax deductions will be available for all policy premiums.

Before claiming tax deductions for term insurance under 80C, bear the following conditions in mind:

• For term policies issued on March 31, 2012, or before, the deduction will be limited to 20% of the sum assured. For instance, if the premium is Rs. 8,000 and the sum assured is Rs. 30,000, up to Rs. 6,000 may be deducted.

• The deduction will be limited to 10% of the sum assured for term policies issued on April 1, 2012. For instance, you can deduct Rs. 20,000 if the premium is Rs. 30,000 and the sum assured is Rs. 2,00,000.

Given that the policy is for the life insurance of any individual who is— 

(a) a person with a disability or a person with a severe disability as defined by section 80U, and that the policy get issued on or after April 1, 2013,

Or (b) experiencing a condition or illness as defined by the regulations established under section 80DDB, the deduction will be limited to 15% of the amount guaranteed.

• The sum assured for a single premium payment must be ten times the amount guaranteed to receive the full deduction of Rs. 1.5 lakhs. If not, the deduction amount is limited to 10% of the amount guaranteed.

The sum assured should be Rs. 12 lakhs, for instance, if the premium is Rs. 1.2 lakhs. The deduction amount is limited to Rs. 70,000 if the sum assured is Rs. seven lakhs.  

• Section 80C(5) states that the term policy must be retained for 2 years. Any deductions will be considered income from the prior year of termination, sale, etc. if the policy turns within two years. According to the policy, no deductions will be permitted in the year of termination or surrender.

Term Insurance Tax Benefit Section 80D

Section 80D allows the deduction of additional premiums paid for term plan health riders that provide medical insurance coverage. For instance, you may qualify for this deduction if you have a critical illness health rider under your term plan. Up to Rs. 25,000 or Rs. 50,000 (for seniors over 60) can be deducted from annual premium payments for individuals and HUF taxpayers. Under this deduction, the Rs. 25,000/Rs. 50,000 total deductions can also include yearly preventative health examinations up to Rs. 5,000. For medical insurance premiums to qualify for deductions, they must be paid in a method other than cash. However, funds can be used to pay for preventive health examinations.

Exclusions Under Section 80D 

After learning everything there is to know about Section 80D deductions, let's examine the exclusions.

• The policyholder will not be eligible for the tax benefits if they do not pay their premiums on time.

• If an employer pays the premium for group health insurance, the tax benefits under Section 80D do not apply.

• Additionally, premiums paid on behalf of children who are employed or working, as well as any other family members, are not covered.

• Finally, if the premium gets paid in cash, it loses value.

Term Insurance 80C and 80D Benefits

You can use riders to increase the scope of your term insurance policy. These will raise your total term insurance premiums and necessitate an additional premium. Nonetheless, you may be able to claim your term insurance 80C deductions for the premiums paid for add-on riders. As mentioned, subject to the conditions, you can deduct up to Rs. 1.5 lakhs annually. Health riders and add-on coverage are the term plans that provide medical coverage. You may qualify for further Section 80D deductions as a result of these. Additionally, this deduction is available above the Section 80C cap.

Eligibility Criteria to Claim Tax Benefits on Term Insurance

Some requirements must be fulfilled to be eligible for the tax benefits of term insurance under Sections 80C and 80D. Those are as follows:

• The deduction is permitted when the premium gets paid during the fiscal year.

• The premiums you pay for yourself, your spouse, and your dependent children are deductible under Section 80C.

• You can deduct health rider premiums for yourself, your spouse, and any dependent children under Section 80D.

• NRIs may also be eligible for a deduction for term insurance premiums paid under 80C or 80D.

• You should keep the policy for at least two years after purchasing it. The benefit obtained under Section 80C of the Income Tax Act 1961 will be reversed if the policy is surrendered or terminated before the two-year mark.

• To receive benefits under Section 10(10D) upon maturity, premiums paid for policies issued after March 31, 2012, must not exceed 10% of the death sum assured.

Conclusion

You can provide your family with financial security in your absence by purchasing term insurance plans. They provide a higher sum assured, are more economical, and are tax efficient. Additionally, you will better plan your finances if you understand the tax benefit sections of your term insurance policy. Consequently, you can successfully protect your loved ones. Overall, term plans are worthwhile to consider regardless of your stage of life because they can accommodate nearly every financial objective.

FAQ

Q1. Do we get tax benefits on term insurance?

Yes, people having term insurance registered in their name or the names of their spouse or children are eligible to claim several tax benefits under Sections 80C, 80D, and 10(10D) of the Income Tax Act.

Q2. Is term insurance tax benefit 80C or 80D?

Sections 80C and 80D of the Income Tax Act of 1961 provide tax benefits for term insurance.

Q3. Is term insurance claim taxable?

In India, Section 10(10D) of the Income Tax Act provides that term insurance claims are tax-free on the policyholder's untimely death.

Q4. Are death benefits from a term insurance policy taxable?

In the event of the policyholder's untimely death, the insurance amount given to their designated beneficiary is not subject to taxes.

Q5. Are riders with critical illness or accidental death benefits tax-deductible?

Riders who receive critical illness benefits or accidental death are eligible for a tax deduction of up to Rs. 25,000 under Section 80D of the Income Tax Act.

Q6. What is the limit of the tax deduction for senior citizens under Section 80D?

Senior citizens may receive a deduction of up to Rs. 50,000 for paying the premiums for a health insurance policy under Section 80D of the Income Tax Act, 1961.

Q7. What is the tax deduction limit for ordinary citizens under Section 80D?

The tax deduction limit under Section 80D for paying a health insurance policy premium is Rs. 25,000 for people not considered senior citizens.

Q8. Can I claim both Section 80D and Section 80C?

Indeed. While Section 80D offers deductions up to Rs. 75,000 or, in the case of senior citizens, a maximum benefit of Rs. 1,00,000 annually, Section 80C offers deductions up to Rs. 1.5 lakhs annually.

Q9. Can I claim both 80C and 80D benefits for a term insurance policy?

No, pure term insurance premiums qualify under Section 80C. Health riders, like critical illness cover, may be eligible under Section 80D.

Q10. How much deduction can I claim for term insurance under Section 80C?

The maximum deduction under 80C is ₹1.5 lakh, including other eligible investments like PPF, EPF, and LIC premiums.

Q11. Is GST included in the term insurance premium while claiming under 80C?

No, only the base premium amount (excluding GST) qualifies for deduction under 80C.

Q12. Can I claim my spouse’s term insurance premium under 80C?

Yes, you can claim deductions for premiums paid for your spouse and children, provided you are the policyholder.

Q13. What happens if I miss paying my term insurance premium?

If the policy lapses, you lose tax benefits under 80C for that financial year. Reinstating the policy does not allow retroactive tax claims.

Q14. Can a business owner claim term insurance premiums as a business expense?

No, term insurance premiums for personal life cover do not qualify as business expenses but can be claimed under 80C.

Q15. How does term insurance benefit in HUF taxation?

If a Hindu Undivided Family (HUF) pays premiums for a member’s policy, the HUF can claim deductions under Section 80C.

Q16. Are employer-paid term insurance premiums taxable for employees?

If an employer pays for group term insurance, it is not counted as taxable income for the employee but cannot be claimed under 80C.

Q17. Can NRIs claim 80C benefits on term insurance?

Yes, NRIs can claim deductions under 80C for premiums paid on term insurance policies in India.

Q18. What happens if I surrender my term insurance policy?

Since term insurance has no maturity benefit, surrendering the policy does not trigger tax implications, but you lose life cover.