Tax Sections Where Term Insurance Tax Benefits Can Be Claimed

The Income Tax Act (ITA) offers tax reductions and exemptions to let taxpayers invest in many instruments, including term insurance. Policyholders get a secure life insurance policy for their families and long-term peace of mind with term insurance.

What exactly is Term insurance?

According to its name, a term insurance plan is an insurance policy for a specific term. It provides a considerable amount of coverage for a relatively modest price. The beneficiary receives the death benefit if the policyholder dies during the policy period; with the assistance of a term insurance calculator, you can determine the coverage's premium.

Term Insurance Tax Benefits under various Income Tax Sections

1. Allowance under Section 80C: Section 80C permits a tax deduction of up to 1.5 lakhs for the premiums paid on a term insurance policy.

2. Tax Benefit under Section 10 (10D): It provides tax benefits to a death benefit beneficiary.

3. Allowance under Section 80D: Section 80D allows a deduction of up to 25,000 for premiums paid on term insurance policies with critical illness coverage.

Let's investigate each of these subsections in depth.

Tax Advantages for Life Insurance Benefits

A life insurance policy's primary function is to pay the policyholder's beneficiaries after death. If the insured dies during the policy's term, an insurance policy pays the beneficiaries the death benefit. After filing a claim, the beneficiary can pay daily expenditures with most of the death benefit.

In addition to providing financial security for your loved ones, a life insurance policy also allows you to deduct your premium payments from your total income. However, most individuals are unaware that term insurance tax benefits are also provided on death payouts.

Tax Benefit on the Received Benefit Payment

Insurance death benefits is tax-free under Section 10(10D) of the Income Tax Act. Standard-term insurance plans pay the death benefit during the duration of the policy. In contrast, the return of premium term insurance plans reimburses the premium paid upon maturity if the insured lives the policy term. Even this premium return is tax-free according to Section 10 (10D).

The death benefit obtained under the following conditions is not exempt from taxation:

1. Any benefit obtained pursuant to Section 80 DD(3) or Section 80DDA(3)

2. Any amount paid out by a Keyman insurance policy

3. Section 80C reduces taxes. Under this Section, all specified investments and instruments can deduct Rs 1,50,000. PPF, EPF, ULIP, ELSS, home loan repayment, kid education tuition, life insurance premiums, etc.

4. Under this Section, premiums paid for term life insurance are eligible for a deduction of up to Rs. 1.5 lakhs (total of all investments and payments under this Section). These conditions must be met to qualify for tax benefits for term insurance under Section 80C:

5. Annual premiums should be at most 10% of the amount insured. If the premiums surpass 10%, proportional deductions will be made.

6. The deduction will only apply to insurance issued before March 31, 2012, provided the annual premium does not exceed 20% of the sum guaranteed.

7. Following Section 80C(5), if a policy is voluntarily surrendered or cancelled within two years of its inception, the policyholder will not receive Section 80C tax benefits on premium payments.

Tax Benefit for Term Insurance under Section 80D: The Section is traditionally allocated for only health insurance policies that provide a deduction for health insurance coverage purchased for oneself, one's spouse, children, or parents, with varying deduction limits and circumstances.

However, specific term plans also qualify for Section 80D tax benefits. Term insurance policyholders who have selected a health-related rider (such as Critical Illness, Surgical Care, or Hospital Care Rider) are also eligible for discounts. * Currently, there are 2 tax regimes in India – new and old. To get the tax benefit you desire, choose the correct one after consulting an expert. You can opt for a regime change during the next financial year.

Conditions for benefit 80D under term insurance include:

1. Deductions under Section 80D are available for amounts not exceeding Rs. 25,000.

2. If you have purchased insurance coverage for your parents, you are eligible for an additional Rs. 25,000 in tax deductions.

3. If your parents are senior citizens, you can deduct up to Rs. 50,000 from your income.

4. Section 10 Term Insurance Tax Exemption (10D)

5. The sum insured upon maturity, surrender, or death is excluded under Income Tax Act §10(10D). Section 10 exempts such incentives (10D).

Conditions for Section 10(10D) term insurance tax exemption:

The Section 10(10D) term plan tax benefit is applicable if the premium is less than 10 per cent of the sum assured or if the total guaranteed is at least ten times the premium.

One can determine this with the term insurance calculator. 1% TDS (Tax Deducted at Source) is applied if the payout exceeds Rs. 1,00,000 and the policyholder's PAN is available to the insurer.