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Term Insurance Tax Benefits: Save Taxes and Secure Your Future

As the financial year approaches its end, tax planning becomes a top priority for many individuals. Strategic investments help grow your wealth and minimize your tax liability. Term insurance emerges as a smart choice, offering significant tax benefits under Sections 80C and 80D of the Income Tax Act 1961.

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Save Tax with Term Insurance

Explore how term insurance can help you avail tax benefits

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What Is Term Insurance?

Term insurance is a pure protection plan that provides financial security to your loved ones in case of your untimely demise. It offers high coverage at affordable premiums, making it a cost-effective solution for financial protection. In the unfortunate event of the policyholder's death, the nominee receives a lump-sum death benefit, ensuring financial stability during challenging times.

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Term Insurance Tax Benefits Under Different Sections of the Income Tax Act

How Term Insurance help you to save on taxes

Tax Benefits Under Section 80C :

Under Section 80C, you can claim deductions of up to ₹1,50,000 per year on premiums paid towards your term insurance policy.
Important Note: The premium amount must be less than 10% of the sum assured to qualify for deductions under Section 80C.

Tax Exemption Under Section 10(10D):

The death benefit received by your nominee is completely tax-free under Section 10(10D) of the Income Tax Act. This ensures your loved ones receive the full amount without any tax deductions.

Tax Benefits Under Section 80D:

While primarily associated with health insurance, term insurance policies with health-related riders (such as critical illness cover) are also eligible for deductions under Section 80D.
- Individuals below 60 years: Deduction of up to ₹25,000 for self, spouse, and dependent children.
- Senior Citizens: Additional deduction of ₹50,000 if premiums are paid for parents aged 60 and above.
- Maximum Deduction: Up to ₹75,000 annually, combining benefits for self, dependents, and senior citizen parents.

Take a look at the table below for a complete understanding of the term insurance tax benefits under section 80D will be as follows:

Life stage	Premium amount paid		Upper limit to Term Insurance Tax benefits u/s 80D
Life stage	For Self, spouse, and children	Parents and in-laws	Upper limit to Term Insurance Tax benefits u/s 80D
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

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Term Insurance Tax Benefits: Old vs. New Tax Regime

The Union Budget 2023 introduced a new tax regime. You can choose to be taxed under either the old or new regime. Here's how tax benefits of term insurance differ under each:

Term Insurance Tax Benefits	Old Tax Regime	New Tax Regime
Section 80C	Can be claimed	Cannot be Claimed
Section 80D	Can be claimed	Cannot be claimed
Section 10(10D)	Death Benefit is tax-free under both tax regimes for the nominee

Maximizing Tax Benefits with Term Insurance Riders

Enhance your term insurance plan by opting for add-ons or riders:

Critical Illness Rider: Provides coverage for major illnesses like cancer or heart disease.
Accidental Death Rider: Offers additional financial support in case of accidental death.
Surgical Care Rider: Covers expenses related to surgeries.

Premiums paid towards these riders are eligible for deductions under Section 80D, capped at:

₹25,000 for individuals below 60 years.
₹50,000 for senior citizens.

How to Claim Tax Benefits Under Section 80D

Check Your Policy Details: Verify if your policy includes eligible riders like critical illness cover.
Pay Premiums on Time: Ensure timely payment of premiums to avoid any disruptions in coverage.
Accurate Filing: File your income tax returns accurately, including all relevant details of your term insurance policy and riders.

Eligibility Criteria to Claim Term Insurance Tax Benefits

You can claim tax benefits on premiums paid for term insurance policies only if the policyholder is:

Self
Spouse
Dependent Child
Dependent Parents or In-laws

Understanding the Tax Implications of Term Life Insurance

TDS on Term Life Insurance Policy: If you receive a death benefit exceeding ₹1 lakh, the insurer will deduct 1% as TDS.
GST on Term Insurance: GST of 18% is levied on term insurance premiums. However, NRIs can claim a GST waiver on premiums paid to keep their policies active.

Is Term Insurance Tax-Free?

Death Benefits: Death benefits received from a term insurance policy are completely tax-free under Section 10(10D).
Maturity and Survival Benefits: Maturity and survival benefits are generally taxable as per prevailing tax laws. However, for policies issued before April 1, 2023, and those with annual premiums below ₹5 lakh issued after this date, maturity benefits remain tax-exempt.

Exploring Investment Plans to Complement Term Insurance

Consider diversifying your portfolio with structured investment plans:

5-Year Investment Plan: Ideal for short-term goals.
10-Year Investment Plan: Suitable for medium-term financial goals like car purchase or education funding.
20-Year Investment Plan: Best for long-term objectives such as retirement planning or buying a home.
5 Lakh Investment Plan: Tailored to optimize returns on a specific investment amount.

Wrapping It Up!

Term Life Insurance is one of the most efficient ways to secure your loved one's financial needs, but along with that, it also offers various tax benefits making it one of the tax-saving tools. Every individual should be well aware of the term insurance tax benefits before purchasing a term plan to secure the financial future of themselves and their family. Understanding and knowing about term insurance tax benefits allows you to plan your finances better and helps you make the most of it.

FAQs

Q: What are term life insurance tax benefits?

Ans: Term insurance tax benefits are deductions and exemptions offered under Sections 80C, 80D, and 10(10D) of the Income Tax Act, 1961. These benefits reduce taxable income and ensure financial savings for policyholders.
Q: Which sections of the Income Tax Act cover term insurance?

Ans: Term insurance premiums are eligible for deductions under Section 80C (up to ₹1.5 lakh annually) and Section 80D for health riders (up to ₹75,000). Additionally, death benefits are tax-free under Section 10(10D).
Q: Can I claim tax benefits on term insurance premiums?

Ans: Yes, you can claim deductions on premiums paid for term insurance under Section 80C. Adding health riders allows you to claim additional benefits under Section 80D.
Q: Are death benefits from term insurance taxable?

Ans: No, the death benefits beneficiaries receive are tax-exempt under Section 10(10D) of the Income Tax Act.
Q: Can I claim both 80C and 80D for term insurance?

Ans: Yes, you can claim deductions up to ₹1.5 lakh under Section 80C and up to ₹75,000 (or ₹1,00,000 for senior citizens) under Section 80D for eligible premiums.
Q: What is the maximum deduction for senior citizens under Section 80D?

Ans: Senior citizens can claim deductions up to ₹50,000 annually for premiums paid towards health riders or standalone health policies.
Q: Which riders qualify for tax benefits under term insurance?

Ans: Riders such as Critical Illness Cover, Surgical Care Cover, and Terminal Illness Cover are eligible for tax deductions under Section 80D.
Q: What happens if I don’t pay my term insurance premiums?

Ans: If premiums are not paid on time, the policy will lapse, and you will lose all benefits, including tax deductions under Sections 80C and 80D.
Q: Can I claim term insurance benefits if the policy lapses?

Ans: No, tax benefits cannot be claimed for lapsed policies. Ensure timely payment to retain coverage and associated tax benefits.
Q: How do investment plans complement term insurance?

Ans: Plans like the 5-Year Investment Plan, 10-Year Investment Plan, 20-Year Investment Plan, and 5 Lakh Investment Plan provide growth opportunities while term insurance ensures financial protection for your loved ones.
Q: Is health insurance covered under 80C or 80D?

Ans: Health insurance is covered under Section 80D. You can claim deductions for health premiums and preventive check-ups separately from term insurance.
Q: Can I enhance my tax benefits with riders?

Ans: Yes, adding riders such as Critical Illness or Terminal Illness Cover to your term insurance increases coverage and eligibility for tax deductions under Section 80D.
Q: Are premiums paid for term insurance tax-deductible?

Ans: Yes, premiums paid for term insurance are deductible under Section 80C, reducing taxable income up to ₹1.5 lakh annually.
Q: What are the tax benefits under Section 10(10D)?

Ans: Section 10(10D) ensures that death benefits from term insurance are entirely tax-free for the beneficiary, with no upper limit.
Q: Can I include my parents’ term insurance premiums for deductions?

Ans: Yes, if you pay for your parents' term insurance policies with health riders, you can claim deductions up to ₹25,000 (₹50,000 for senior citizens) under Section 80D.
Q: What is the impact of the Return of Premium (ROP) rider on taxes?

Ans: The ROP rider increases your premium, allowing you to claim a higher deduction under Section 80C while providing additional financial security.
Q: Is GST on premiums eligible for tax deductions?

Ans: No, GST and other cesses on premiums are not deductible under Sections 80C or 80D.
Q: Can I claim tax benefits for both term insurance and health insurance?

Ans: Yes, you can claim up to ₹1.5 lakh under 80C for term insurance and up to ₹75,000 (₹1,00,000 for senior citizens) under 80D for health insurance.
Q: Are term insurance claims taxable?

Ans: Death benefit claims are tax-exempt under Section 10(10D). However, maturity benefits may be taxable if the annual premiums exceed ₹5 lakh.
Q: What are term insurance benefits for senior citizens?

Ans: Senior citizens can claim up to ₹1,00,000 in combined deductions under Section 80D for term insurance with health riders and standalone health policies.
Q: How can I claim tax benefits for a term insurance policy?

Ans: File your Income Tax Return (ITR) and include premium payments under Sections 80C and 80D. Ensure timely payments and accurate documentation for seamless claims.
Q: Should I buy term insurance only for tax benefits?

Ans: No, term insurance is primarily for financial protection. Tax benefits are an additional advantage but should not be the sole reason for purchase.
Q: What is the tax benefit limit for health riders under Section 80D?

Ans: You can claim up to ₹25,000 for health riders on term insurance, with the limit increasing to ₹50,000 for senior citizens.
Q: How do I maximize my term insurance tax benefits?

Ans: Opt for health riders, pay premiums on time, and ensure premiums align with the provisions of Sections 80C and 80D for maximum deductions.
Q: Is term insurance mandatory for tax savings?

Ans: While not mandatory, term insurance provides dual benefits of financial security and tax savings, making it a prudent choice for most individuals.