Term Insurance Tax Benefits Applicable as Per Section 80C, 80D and 10D
One kind of life insurance that provides coverage to the policyholder is term insurance. This coverage, though, is only for a specific amount of time. The company that provides term insurance 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 provides several tax advantages under sections 80C, 80D, and 10D. This article discovers more about these advantages and how to obtain them.
Table of content
What is Term Insurance?
Term Insurance is a policy that offers only protection and has no investment or maturity benefits. These reasonably priced plans give people high life insurance at cost-effective rates. The death benefit will be paid to the beneficiary if the policyholder passes away while it is in effect. The goal is to give the policyholder's loved ones’ financial security when they need it. The recipient can use this money to settle debts or replace lost income. The nominee(s) may receive the death benefit in instalments or as a lump sum. A term insurance plan provides the policyholder with long-term peace of mind.
Eligibility to Claim Term Insurance Tax Benefits
Term insurance tax benefits are subject to fixed eligibility requirements in the Income Tax Act 1961. To be eligible for term insurance tax benefits, a person must meet the following criteria:
Anybody who wants to take advantage of India's term insurance tax benefits has to be an Indian citizen or a Hindu Undivided Family (HUF).
A deduction under the term insurance tax benefits is available to any Indian resident whose income is within the taxation slab.
Senior citizens (60 years of age and older) whose income is within the taxation slab are also eligible for tax deductions on term life insurance, per Section 80C of the Income Tax Act.
Any Indian citizen who wants to take advantage of deductions under the Income Tax Act must have a term insurance policy registered in their name, their spouse's name, or their children's name.
A person must meet these standard eligibility requirements to meet these standard eligibility requirements.
Term Insurance Tax Benefits Under Section 80C
Section 80C of the Income Tax Act of 1961, one of the three primary sections about the tax advantages of term insurance, stipulates that an individual may receive tax deductions of up to Rs 1.5 lakhs on term insurance policy premiums. The following are important considerations for obtaining tax benefits under section 80C:
The policyholder's premium cannot be more than 10% of the sum assured, according to Section 80C.
A proportionate tax deduction is applied if the premium paid is greater than 10% of the amount guaranteed.
Additionally, the section specifies that there will be no tax benefits on premium payments if a policyholder voluntarily surrenders their policy or the policy terminates within two years of its start.
Term Insurance Tax Benefits Under Section 80D
Individuals or Hindu Undivided Families (HUF) may deduct health insurance premiums from their taxable income under Section 80D. In addition, some term plans qualify for Section 80D tax benefits. Deductions are also available to policyholders who have added a health-related rider to their term insurance policy (such as a Critical Illness, Surgical Care, or Hospital Care Rider). According to Section 80D, one of the chief tax advantages of term insurance is:
A deduction of up to Rs 25,000 is authorised for every fiscal year.
If you have bought insurance for your parents, you can also deduct an additional Rs. 25,000.
This deduction can be increased to Rs 50,000 if your parents are elderly.
Term Insurance Tax Benefits Under Section 10D
Section 10(10D) of the Income Tax Act of 1961 enumerates the following tax benefits:
If the policyholder passes away unexpectedly, all policy proceeds are paid to the nominee tax-free.
Section 10(10D) further exempts the incentives and surrendering values from taxation.
Tax Benefits on Term Insurance Riders
By naming a specific illness and thus guaranteeing a certain amount for it, individuals or Hindu Undivided Families (HUF) can fortify their insurance policy. According to Section 80D of the Income Tax Act of 1961, the premium paid for these riders or add-ons that are a part of the insurance plan can be deducted by Rs 25,000 for individuals and Rs 50,000 for senior citizens.
How to Claim Tax Benefits for Term Insurance?
Depending on whether you are self-employed or salaried, there are minor differences in the process for claiming tax benefits on term insurance premiums:
Salaried Individuals
Salaried people can use IT Form 12BB to claim tax benefits on the premiums paid for their term insurance, u/s 80C and 80D, if they have applicable riders, such as Critical Illness riders. Salaried workers use Form 12BB, an investment declaration form, to report their investments and tax-saving expenses. You can only deduct your term insurance premiums after submitting this form. At the beginning of the fiscal year, you must fill out this form and submit it, stating the investments you plan to make. It will be incorporated into your Form 16 in this manner. You must keep the premium certificate and the receipt for the premium payment with you for safekeeping along with the Form 12BB. Even though you don't need these documents to claim the available tax deduction on term insurance premiums, you might need to provide them if the tax department needs more information.
Self-employed People
To claim the tax benefits of the term plan premium, self-employed individuals must file their ITR. You can claim the available tax deductions under Sections 80C and 80D on your term insurance premium by declaring your premium payments on the ITR form. Please be aware that if you have added an accidental benefit rider or a critical illness rider to your term insurance policy, you may also be eligible for a tax deduction of up to Rs 25,000 on premiums paid under section 80D. It's also important to remember that you can only claim the actual amount of tax deductions, not the maximum amount. For instance, you can deduct up to Rs 25,000 in taxes annually under Section 80D. However, you will only claim a deduction of Rs 12,000 rather than Rs 25,000 if your annual premium payment is Rs 12,000. Furthermore, anyone can claim a deduction if the GST paid on it was not covered by the premium.
How to Choose the Right Insurance Plan for Maximum Tax Benefits
The following factors should be taken into account when purchasing a term insurance plan to maximise tax benefits:
Flexible options for paying premiums are essential for any term insurance plan you are considering. An annual deduction of up to Rs 1.5 lakh must be permitted for these premiums.
All of your financial obligations and future requirements must be covered by the sum assured in the insurance policy.
Because your family members or nominees will receive more financial coverage the more the policy is in effect, consider getting insurance policies with longer terms.
Selecting extra riders will improve your insurance policy and expand coverage in the event of a specific illness.
These factors ensure you choose the best term insurance plan with the highest possible tax benefits for your future.
Conclusion
Maximising financial gains while maintaining tax compliance can be achieved by being aware of the tax consequences of term insurance contracts. Term insurance is still a useful tool in financial and estate planning, whether premiums are structured to remain within exempt limits or taxable maturity benefits are planned for. Your loved ones will have financial security thanks to tax-free death benefits, and the advantages of your insurance can be further increased with careful premium and tax deduction planning.
FAQ
Q1. Do we get tax benefits on term insurance?
Yes, people with term insurance registered in their name, the name of their spouse, or children are eligible to claim tax benefits under Sections 80C, 80D, and 10(10D) of the Income Tax Act.
Q2. What are term insurance tax benefits?
Policyholders can take advantage of tax benefits from term insurance in the form of exemptions and deductions. The Indian Income Tax Act of 1961 covers these benefits.
Q3. Is term insurance tax benefit 80C or 80D?
According to the Income Tax Act 1961, term insurance is eligible for tax benefits under sections 80C and 80D.
Q4. What is section 10(10D) insurance tax benefit?
According to this clause, the entire insured amount will be exempt from taxes in the event of the policyholder's untimely death. It also entails giving up incentives and charges.
Q5. How much term insurance can be claimed tax-free?
The tax-free amount of death benefits has no upper limit. If the money guaranteed is Rs. 10 lakh or Rs. 1 crore, the whole amount is still exempt. According to Section 10(10D), any claim money obtained under riders such as accidental death benefits is likewise tax-free if the term insurance policy contains them.
Q6. Are death benefits from a term insurance policy taxable?
No, the insurance amount paid to the policyholder's nominee in their untimely death is not subject to taxes.
Q7. Are riders with critical illness or accidental death benefits tax-deductible?
Riders who receive benefits for accidental death or critical illness are eligible for a tax deduction of up to Rs 25,000 under Section 80D of the Income Tax Act of 1961.
Q8. Who is eligible to claim the tax benefit of term insurance premium?
Sections 80C, 80D, and 10(10D) of the Income Tax Act of 1961 allow both the policyholder and the nominee to claim the tax benefit of term insurance.
Q9. Should I buy a term plan on the basis of the term insurance tax benefits only?
You shouldn't base your choice to purchase a term plan only on the tax advantages. Instead, when purchasing a term plan, you must consider several other factors, such as adequate sum assured, affordability, and meeting your individual needs. Additionally, when purchasing a term plan, you should refrain from blunders.
Q10. Can I get term insurance tax benefits if I do not pay the premiums?
Your term insurance plan must be active to be eligible for term insurance tax benefits. It indicates that you cannot avoid paying the premiums to reduce your income tax.
Q11. What will happen if you do not pay the term insurance premium on time?
You have a grace period to pay off your past-due term insurance premiums. Any benefits associated with the policy, including the term insurance tax benefits, are risk-free once the premium is within this time frame.
Related Posts
See AllEmployees' Provident Fund Organization members can receive a pension upon retirement. Employers and employees contribute 12% of their...
In 2004, the Indian government launched the National Pension Scheme (NPS) , a long-term retirement scheme. With market-linked assets,...
Comments