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Buying life insurance is important for you, mainly if you are the only sole earner for your loved ones. With life insurance, you can secure the financial future of your loved ones in your absence. Life insurance plans payout a death benefit in case of your unfortunate death or a maturity benefit in case of survival of the policy term (as per the T&Cs). Not only that, life insurance also provides you with certain tax benefits as per the prevailing tax laws.
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The Government of India offers various life insurance tax benefits under the Income Tax Act of 1961. The tax benefits of life insurance policies apply to all types of life insurance policies and offer policyholders a way to save on their income tax liabilities while providing financial security for themselves and their families. The most common sections that offer life insurance tax benefits are 80C, 80D, and 10(10D). Let us take a brief look at these sections before learning in detail about these sections and their conditions.
Term Plans
Here is a list of all the life insurance tax benefits offered by the Government of India:
Section 80C
Under Section 80C of the Income Tax Act of 1961, you can claim a life insurance premium tax deduction of Rs. 1.5 Lacs from your net taxable income on premiums paid towards the life insurance policy of self, children, or partner.
Section 80D
This section allows you to save on your premiums paid towards maintaining your health insurance plan. This life insurance tax benefit under 80D is also applicable in case you have health benefit riders included in the base plan.
Section 10(10D)
Section 10(10D) of the income tax act offers life insurance tax exemption on the death or maturity benefit received by you or your family as per the prevailing tax laws. These life and term insurance tax benefits make life insurance policies an excellent investment in the long run.
Let’s understand in detail the life insurance tax benefits under all the sections of Income Tax Act of India,1961.
Life insurance plans offer tax benefits under specific sections of the Income Tax Act, 1961. Here is a list of all the sections under which you can claim life insurance tax benefits:
Under this section, the premium paid towards the term insurance plan are eligible for tax deductions under section 80C of the ITA, up to a max limit of Rs. 1.5 Lakhs per year. This means that the premium amount paid towards a term plan can be deducted from your gross total income before computing the tax liability.
To get tax benefits for a term life insurance plan under section 80C, you need to keep the insurance for at least 2 years. If you cancel the plan before 2 years are up, the tax deductions you got in earlier years will be counted as income for those years.
Certain conditions to avail of life insurance tax benefits under section 80C are:
If you purchased life insurance before March 31, 2012, you can claim tax deductions on the premium, but it can't be more than 20% of the insurance amount.
If you bought a term plan after April 1, 2012, you can claim tax benefits on the premium, but it can't be more than 10% of the insurance amount.
But if you have a disability or a critical illness and you bought term insurance after April 1, 2013, you can claim tax benefits only if your premiums are 15% or more of the total insurance amount.
Some types of life insurance like term plans, offer riders such as critical illness rider, which offer additional benefits in case the life assured is diagnosed with a critical illness.You can get a tax deduction under section 80D of the Income Tax Act for the premiums you pay for these riders. You can claim up to Rs. 25,000 per year for yourself, your spouse, and dependent children.
The term insurance tax benefits under section 80D will be as follows:
| Life stage | Premium amount paid | Upper limit to Life Insurance Tax benefits u/s 80D | |
| For Self, spouse, and children | Parents and in-laws | ||
| Individuals (covered) under 60 years | Rs. 25000 | Rs. 25000 | Rs. 50000 |
| Your parents are >60 years | Rs. 25000 | Rs 50000 | Rs 75000 |
| When both you and your parents are >60 years | Rs 50000 | Rs 50000 | Rs 100000 |
Certain conditions to avail life insurance tax benefits under section 80D are:
For life insurance plans that cover individuals, spouses, children, and anyone below 60 years of age, the maximum tax deduction allowed under this section is Rs. 25,000.
If you are over 60 years old and have dependent parents or in-laws covered by the plan, you can claim a maximum tax deduction of Rs. 50,000.
Payments Eligible for Deductions Under Section 80D
Below is a list of the payments that are eligible for tax deductions under Section 80D:
Cashless payments for health insurance premiums or term life insurance with health riders are eligible for tax deductions.
Expenses for preventive medical checkups can also be claimed for tax deductions.
If you're covering the treatment costs for a senior citizen (over 60 years) who doesn't have a health insurance plan, these expenses can be considered for tax deductions.
Payments made for government programs and the Central Government's Health Scheme are eligible for tax deductions as well.
Starting from April 1, 2023, for life insurance plans issued on or after that date, life insurance tax exemption on maturity benefits under section 10(10D) will only be applicable if the average annual premium paid is under Rs. 5 lakhs. If the premium exceeds this limit, the benefits will be added to your income and taxed at the applicable rates.
According to the New Union Budget 2023, for plans issued after April 1, 2012, the maturity and death benefits, along with any accumulated bonus, are tax-free if the premium doesn't exceed 10 percent of the sum assured amount. For plans issued between April 1, 2023, and March 31, 2012, the premium amount should not exceed 20 percent of the sum assured for these benefits to be tax-free.
Certain conditions to avail term plan tax benefits under section 10(10D) are:
If you get a term policy on or after April 1, 2012, make sure that the total premium you pay doesn't go over 10% of the Total Sum Assured.
If the benefit payout is more than ₹1,00,000, and the policyholder has a PAN card, there will be a 1% TDS applied.
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Insurers offer different life insurance riders to enhance coverage, and these riders can provide more than just additional protection. Depending on the life insurance rider you select and its specific conditions, you may also be eligible for extra tax benefits.
Here's how life insurance plan riders can contribute to extra tax advantages:
If you add the Critical Illness rider to your term plan, you can get tax deductions under Section 80D.
For riders like Return of Premium, which you choose when buying a term plan, the premium increases. This helps you save more money under Section 80C. You can use an online term plan calculator to see how the premium changes with these riders.
TDS on Life Insurance Policy are as follows:
Starting from October 2014, if you receive more than Rs 1 lakh from a life insurance policy that is not exempt under Section 10(10D), the insurer will deduct 1% as TDS before making the payment, including bonus payments.
If the amount received is less than Rs 1,00,000, no TDS will be deducted, but the received amount will be fully taxable, and you can claim credit for the TDS in your Income Tax Return.
According to the Union Budget 2024, announced by Finance Minister Nirmala Sitharaman, the Tax Deducted at Source (TDS) rate on life insurance payouts has been reduced from 5% to 2%. This means policyholders or nominees will receive a higher payout due to the lower tax deduction.
There have been no changes to the applicable Goods and Service Taxes (GST) on life insurance policies. If you're an Indian residing outside India, you have the opportunity to claim GST waiver on term insurance for NRIs of 18% on your premiums paid to keep the policy active. This waiver enables you to save more on your life insurance plan tax benefits as per the provisions of the Income Tax Act of 1961.
Deductions for term life insurance tax benefits can only be claimed by individuals and members of Hindu Undivided Families (HUF) on the premium amounts they pay for their life insurance policies or on the payouts they receive. These tax benefits are applicable only if the policyholder is:
Self
Spouse
Dependent Child
Dependent Parents or In-laws
It's important to note that parties other than individual people and Hindu Undivided Families (HUFs) cannot claim deductions for life insurance under Section 80D.
Under the ITA, 1961 tax can be saved on your hard earned amount by using life insurance solutions and plans. You can easily get tax benefits at different phases of the plan:
Phase 1: Entry Benefit
You get tax benefits on your premiums paid u/s 80C
Phase 2: Earnings Benefit
Your investments gets the potential to fore and is not currently taxable
Phase 3: Switching Benefit
You have the option to switch between debt, equity and balanced funds at any time and then these switchers are not taxable.
Phase 4: Exit Benefit
The benefits received on maturity under the plan are exempted, subjected to conditions u/s 10(10D) of the ITA, 1961.
You should buy a life insurance policy that fits your needs the best as it not only offers you the security and protection of your loved ones but also provides you the chance to create wealth in the long run. You can claim life insurance tax benefits under sections 80C, 80D, and 10(D) of the ITA, 1961. You should always compare life insurance plans on the basis of premiums, CSR, policy term, and sum assured before purchasing the most suitable policy online.
†Policybazaar does not endorse, rate or recommend any particular insurer or insurance product offered by any insurer. This list of plans listed here comprise of insurance products offered by all the insurance partners of Policybazaar. For a complete list of insurers in India refer to the Insurance Regulatory and Development Authority of India website, www.irdai.gov.in
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