Life
General
Claims
Resources
Digit Glow Term Life Insurance
I agree to the Terms & Conditions
Tax Benefits of Term Insurance Policy Under Section 80C, 80D and 10(10D)
Term insurance is not just about securing life coverage for your family; it also comes with attractive tax benefits that can help reduce your taxable income. Under the Income Tax Act, term insurance premiums are eligible for deductions, allowing you to save on taxes.
By understanding which sections offer term insurance tax benefits, such as Section 80C and Section 80D, you can effectively lower your tax liability while ensuring financial security for your loved ones.
This article will explain the different tax benefits of term insurance, including how term insurance tax exemptions and deductions work.
Table of Contents
What is Term Insurance?
Term insurance is a simple, affordable life insurance policy that provides financial protection for your family if you pass away during the term. Unlike other policies, it doesn’t offer your beneficiary maturity or investment benefits, only a death benefit. This can help your loved ones cover expenses, replace lost income, or settle debts.
The appeal of term insurance lies in its low cost, and you can also add extra protection with riders like critical illness or accidental death benefits. However, it doesn’t offer anything if you outlive the policy.
Along with peace of mind, term insurance offers tax benefits, making it a good choice for reducing taxable income while securing your family’s future.
Insights on Tax Benefits in Term Insurance Under Different Sections
Term insurance policies provide tax benefits under three primary sections of the Income Tax Act: Sections 80C, 80D, and 10(10D). Here's a summary of the tax benefits available under each section:
Section 80C Tax Deduction on Term Insurance Premiums
Deduction Limits Under Section 80C:
Conditions to Avail Tax Benefits:
- For policies issued after April 1, 2012, the annual premium should not exceed 10% of the sum assured.
- The premium should not exceed 20% of the sum assured for policies issued before April 1, 2012.
- The policy must remain in force for at least two years to claim tax benefits.
- If the policy is surrendered or terminated within two years of commencement, the tax benefit claimed under Section 80C will be reversed.
How Section 80C Works with Term Insurance?
Let’s understand this with a simple example:
Suppose your annual income is ₹8 lakhs, and you pay a term insurance premium of ₹25,000 per year for a sum assured of ₹30,00,000. Under Section 80C, you can claim this ₹25,000 as a deduction from your taxable income.
Suppose you pay a yearly premium of ₹90,000 for a term policy with a sum assured of ₹30,00,000. Since the premium exceeds 10% of the sum assured, you will not be eligible for the Section 80C deduction.
Section 80D Tax Deduction on Adding Health Riders to Term Plan
Deduction Limits Under Section 80D:
Conditions to Avail Tax Benefits:
- Only the portion of the premium paid towards health-related riders is eligible under Section 80D.
- Premiums for the base term insurance policy are not covered under this section.
How Section 80D Works with Term Insurance?
Let’s understand this with a simple example:
Suppose you pay ₹10,000 as an additional premium for a critical illness rider, and your total premium, base policy + rider premium, is ₹35,000. In that case, you can claim ₹10,000 under Section 80D and the remaining ₹25,000 under Section 80C.
Suppose you have a parent’s health coverage premium of ₹30,000 and a critical illness rider premium of ₹10,000. You can claim ₹10,000 under Section 80C of your family quota and ₹30,000 under senior citizen parents quota.
Section 10(10D) Tax Exemption on Term Insurance Payouts
Section 10(10D) provides tax exemptions on payouts received from term insurance policies. This includes death benefits and, in some cases, maturity benefits if the policy is a term plan with return of premium.
Exemption on Death Benefit
Under section 10 (10D), the amount received by the nominee as a death benefit is entirely tax-free.
Exemption on Maturity Benefit
If you have a return of the premium plan, the maturity amount is also tax-free, provided the premium stays within the above limits.
No Maximum Limit
No cap on the amount exempted under this section.
Conditions to Avail of Tax Exemption:
- For policies issued after April 1, 2012, the premium paid should not exceed 10% of the sum assured.
- The premium for a policy issued before April 1, 2012, should not exceed 20% of the sum assured.
- The exemption does not apply if the payout is received under a keyman insurance policy.
Why This Matters?
Section 10(10D) is particularly important because it ensures your family receives the compensation assured with no tax burden during a difficult time. It also helps in proper estate planning.How Section 10(10D) Works with Term Insurance?
Let us assume the policyholder pays a yearly premium of ₹30,000 for a term insurance plan with a sum assured of ₹50 lakh. If the policyholder passes away, the nominee receives ₹50 lakh as a death benefit, which is completely tax-free under Section 10(10D).How Tax Regimes Affect Your Term Insurance Tax Benefits?
In the Union Budget 2023, a new tax regime was introduced. Now, you can choose between the old and new tax regimes to save on taxes. Here is a comparison of term insurance tax benefits under both regimes:
So, if you want to claim tax benefits on your term insurance premiums, you must stick with the old tax regime. However, the death benefit remains tax-free for your nominee in both regimes.
Eligibility Criteria for Availing Term Insurance Tax Benefits
The table below outlines the eligibility criteria for premiums and claim amounts for availing tax benefits under Sections 80C, 80D, and 10(10D) of the Income Tax Act.
How to Maximise Overall Tax Benefits from Your Term Insurance Policy?
Maximising the tax benefits of your term insurance plan goes beyond simply claiming deductions on premiums. To ensure you’re getting the most out of your policy, it’s important to consider factors like policy terms, riders, and premium payment strategies. Here’s how you can optimise your tax savings:
Claim Deductions Under Sections 80C and 80D
You can claim deductions on premiums under Section 80C (up to ₹1.5 lakh) and health-related riders. You can claim up to ₹25,000 for individuals and ₹50,000 for senior citizens.
Ensure Premiums Are Within the Limit
For policies bought after 31st March 2012, keep the premium under 10% of the sum assured to ensure the death benefit remains tax-free under Section 10(10D).
Add Riders for Extra Deductions
Riders with Critical Illness and Accidental Death offer additional deductions under Section 80D.
Avoid Policy Lapses or Surrendering Early
Keep your policy active to maintain the tax benefits you’ve claimed.
Review and Update Your Policy Regularly
Regularly assess your policy to ensure it aligns with your financial goals and continues to maximise tax benefits. This will ensure that any changes in your needs or tax laws are accounted for.
Consider Spreading Premium Payments
Paying premiums over an extended period can help distribute the financial load while optimising tax savings, especially if the premiums are kept within the deductible limits.
How to Claim Tax Benefits on Term Insurance Premiums?
Section 80C:
When filing your income tax return, include the premiums paid towards your term insurance. You can claim up to ₹1.5 lakh as a deduction. Ensure the policy is in your name, spouse's, or children's name and remains active for at least two years.Section 80D:
If your term insurance policy has health-related riders, such as critical illness riders or accidental death benefit riders, you can claim an additional deduction under Section 80D. Include these premiums when filing your return.GST:
GST on your premiums is not eligible for tax deductions. So, if your premium is ₹10,000 and GST is ₹1,800, you can only claim deductions on ₹10,000 (excluding the GST).Tax Filing:
When filing your tax return, list the base premium (excluding GST) under Section 80C for the policy and Section 80D for any riders. This will allow you to claim your tax benefits without any complications.How to Claim Tax Benefits with Term Insurance Riders?
Claiming Under Section 80D
You can claim a deduction of up to ₹25,000 for the premiums paid on health-related riders, and if you’re a senior citizen, this rises to ₹50,000. This is in addition to the deductions you can claim under Section 80C for the base premium of your term insurance.Multiple Policies and Riders
You can claim deductions for each if you have numerous term insurance policies or riders. For example, if one policy has a critical illness rider and another has an accidental death rider, you can claim deductions for both premiums under Section 80D.FAQs about Term Insurance Tax Benefits
Who will be able to get the tax benefit under Section 10(10D)?
Under which condition can I get excluded from the tax benefit under Section 10(10D)?
You can not get the tax benefit under Section 10(10D) if the policy meets the following conditions:
- The purchasing date of the policy is on or before 31st March 2012, but the sum assured amount is more than 20% of the total amount paid as a premium.
- The purchasing date of the policy is on or after 1 April 2012, but the sum assured amount is more than 10% of the total amount paid as a premium.
When can I raise my claim for the term insurance tax benefits?
Which documents will I have to submit while filing ITR to get the term insurance tax benefit?
You need to submit or attach the following documents while filing ITR to get the term insurance tax benefit:
- Receipts of your paid premiums of term insurance policy
- Policy papers
- Photo ID proofs
What are the tax benefits of term insurance under Section 80C?
How does Section 80D apply to term insurance policies?
What is Section 10(10D), and how does it benefit term insurance policyholders?
Can I claim tax benefits on term insurance premiums under Sections 80C and 80D?
Are term insurance premiums tax-deductible?
What is the maximum deduction available under Section 80C for term insurance?
Is the death benefit from term insurance taxable?
How does GST affect term insurance premiums?
What are the conditions for claiming tax benefits under Section 80C for term insurance?
Can senior citizens claim higher deductions under Section 80D for term insurance?
What is the difference between Section 80C and Section 80D regarding term insurance?
Can I claim tax benefits for multiple-term insurance policies under Section 80C?
Are the maturity proceeds of a term insurance policy taxable under Section 10(10D)?
How does GST impact the tax benefits of term insurance premiums?
What are the conditions for claiming tax benefits under Section 10(10D)?
Can NRIs claim tax benefits on term insurance premiums under Section 80C?
What happens if the term insurance policy is surrendered before maturity?
Is there a limit on the tax-free death benefit under Section 10(10D)?
Can I claim tax benefits for term insurance premiums paid for my parents?
Are there any tax benefits for term insurance riders?
Other Important Term Insurance Guides
Other Important Articles Related to Term Insurance
Disclaimer
- This is an informative article provided on 'as is' basis for awareness purpose only and not intended as a professional advice. The content of the article is derived from various open sources across the Internet. Digit Life Insurance is not promoting or recommending any aspect in the article or its correctness. Please verify the information and your requirement before taking any decisions.
- All the figures reflected in the article are for illustrative purposes. The premium for Coverage that one buys depends on various factors including customer requirements, eligibility, age, demography, insurance provider, product, coverage amount, term and other factors
- Tax Benefits, if applicable depend on the Tax Regime opted by the individual and the applicable tax provision. Please consult your Tax consultant before making any decision.
Latest News
Read More
Renew & Download Policy Document, Check Challan, Credit Score, PUC & more
Anytime, Anywhere. Only on Digit App!
Rated App
Rated App
Scan to Download
