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To save on taxes, taxpayers can take advantage of various exemptions and deductions available under several sections of the Income Tax Act of 1961. They can invest in different financial instruments to be eligible for these tax exemptions and deductions. One such best way of saving tax is term insurance. A term insurance plan is a pure and basic protection plan that offers a life cover (sum assured) to the policy’s nominee in case of the policyholder’s death. In addition to offering financial security, term plans also come with tax-saving benefits for the policyholder.
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The new tax regime launched in the Union Budget 2023 allows earning individuals to choose to save on taxes under either the old or new regimes.
Here is a list of comparisons of the tax benefits of term insurance that you can claim under both tax regimes.
| 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 | |
An important update in the tax benefits of term insurance is that you can only claim tax benefits on the premiums paid under sections 80C and 80D if you have opted for the old tax regime.
Under the new tax regime, you cannot declare and thus, cannot claim term insurance tax benefits on the premiums paid u/s 80C and 80D of the Income Tax Act, 1961.
However, your nominees can still claim term insurance tax exemption on the death benefit payout amount under section 10(10D) in the event of your unfortunate death..
Many people wonder whether term insurance comes under which section 80C or 80D, and the answer to that question is that term insurance offers tax benefits under both sections 80C and 80D along with section 10(10D) of the Income Tax Act, 1961. Here is a list of three (3) sections offered by the Government of India, under which you can claim term life insurance tax benefits:
Let’s understand in detail that term insurance is covered under section 80C, You can get a tax deduction of up to Rs. 1.5 Lacs under section 80C for the premium amounts paid towards your term insurance plan. This section 80C provides a deduction for all the mentioned investments, such as EPF, PPF, ELSS, and ULIP, and the payment of children’s fees, life insurance premiums, and repayment of home loans, etc.
Below are certain conditions to opt for term life insurance tax benefits under section 80C are:
If one has purchased a term insurance plan on or before 31st of March, 2012, then term life insurance tax benefits will be only for the total premium amount up to a maximum of 20% of the Sum Assured.
If one has purchased their term insurance plan on or after the 1st of April, 2012, then term insurance deduction in Income Tax can be claimed only for the premium total which equals a maximum of 10% of the Sum Assured.
In case any individual is disabled or suffering from any sort of critical illness, and has purchased a term insurance plan on or after 1st of April, 2013, then tax can be claimed only if premiums are above or equal to 15% of the Total Sum Assured.
As per section 80C (5), in case of a policy terminated 2 years or voluntarily surrendered from the inception, the policyholder will not get tax benefits on premium payments.
Some term plans offer riders such as critical illness rider, which provide additional benefits in case the policyholder is diagnosed with a critical illness. Premiums paid toward these riders are eligible for deductions under term insurance tax benefit 80D of the Income Tax Act, up to a maximum limit of Rs. 25,000 per annum for self, spouse and dependent children.
Simply put, term insurance under 80D allows a deduction of up to Rs. 25,000 for individuals under 60 years (Rs. 50,000 for individuals over the age of 60 years) on premium amount paid for term plans with a critical illness cover.
Section 80D offers a deduction on health insurance plans purchased for children, spouses or parents with different limits of deductions under different conditions.
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 | |
| 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 |
It is believed that term insurance tax benefit 80D offers tax benefits only for health insurance plans. But now, can term insurance be claimed under 80D? The answer is yes. Term Insurance Tax Benefit 80D can be claimed on health riders added to the base term plan. Certain conditions to avail term insurance tax benefits under section 80D are:
The maximum limit of tax deductions that can be availed under this section is Rs. 25, 000 for term plans covering the individuals, spouse, children, and anyone under the age of 60 years.
The maximum tax deduction for people over the age of 60 like dependent parents and in-laws can be 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 insurance with health riders
Preventive medical checkup expenses
Treatment costs for a senior (over the age of 60) with no health insurance plan
Payments made for government programs and Central Government’s Health Scheme
For life insurance plans issued on or after 1st of April 2023, the tax exemption on maturity benefits u/s 10(10D) will be applicable only if the average annual premium paid by a person is up to Rs.5 lakhs. In case of premium amount after this limit, the benefits will be added to the income and then taxed at the valid rates. As per the New Union Budget 2023, the maturity and death benefits, and accumulated bonus are free of taxes if the premium doesn’t exceed 10 percent of the sum assured amount for plans issued after April 1st 2012, and for plans which are issued between April 1, 2023, and March 31, 2012, the premium amount doesn’t exceed 20 percent of the sum assured.
Certain conditions to avail term plan tax benefits under section 10(10D) are:
The total premium paid in the term policy should not exceed 10% of the Total Sum Assured if the term policy is issued on or after the 1st of April,2012.
If the benefit payout is more than 1,00,000, and the PAN card of the policyholder is available then a TDS of 1% will be applicable.
Term Plans
TDS on Term Life Insurance Policy are as follows:
The insurer deducts 1% as TDS before payment, including bonuses.
If you receive less than Rs 1,00,000, no TDS is deducted.
The received amount is fully taxable, and you can claim TDS credit in your Income Tax Return.
Increasing TDS on insurance policy proceeds to 5%.
Applied to the income portion of proceeds paid or due on or after September 1, 2019.
Many wonder can term insurance be claimed under 80D, and the answer is that various term riders are offered by insurers to provide increased coverage, but their benefits are not restricted to just strengthening a term insurance plan. Based on the term insurance rider you choose with a term insurance plan and its associated conditions, you can opt for additional term insurance tax benefits 80D.
Here's how term 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 term insurance tax benefits 80D.
For options like Return of Premium, which you choose when buying a term plan, the premium increases. This helps you save more money under Section 80C and answers the question: is term insurance covered under 80C? You can use an online term insurance calculator to see how the premium changes with these riders.
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To understand what is term insurance GST, you can take a look at the New Budget. As per the new Union Budget 2023, the GST (Goods and Service Tax) of 18% will be levied as usual on the term insurance policies. However, if you are an Indian living outside India, you can claim tax benefits in the form of a GST waiver on term insurance for NRIs of 18% on the premiums paid to keep the policy active. This allows you to save further on your term plan tax benefits under the Income Tax Act of 1961.
A deduction can be claimed only by individuals and Members of HUF (Hindu Undivided Families) on the premium amount being paid for their term insurance policies or on the payouts received by them. You can claim term insurance tax benefits only on the premiums paid only if the policyholder is:
Self
Spouse
Dependent Child
Dependent Parents or In-laws
Any other party other than the ones stated above cannot claim this deduction. For example, a firm or a company cannot file for term insurance under 80D tax deductions.
Yes, the death proceeds received from a term insurance policy are completely tax-free. Apart from that, the maturity and survival benefits are taxable as per the prevailing tax laws.
According to the New Union Budget, the term insurance plans issued before the 1st of April 2023 will receive maturity and survival benefits tax-free as per the previous budget rules. However, policies issued after 1st April 2023 will attract tax on the maturity or survival amount only if the annual premium of the term insurance is more than 5 Lacs. For policies with annual premiums of less than 5 Lacs, the maturity amount will remain tax-exempted under the new rules.
Term 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 having complete knowledge about term insurance tax benefits allow you to plan your finances better and helps you make the most of it.
†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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