Term Life Insurance for Tax Benefits
Know the tax benefits that automatically come with availing a term life insurance policy. Listed are the tax benefits for the premium paid and the tax benefits from the death benefit of term life insurance policies.
Individuals who want to save money on taxes can choose term insurance coverage. Any term insurance policy holder is entitled for tax benefits under the Income Tax Act of 1961. Typically, all term insurance contracts provide consumers tax benefits under Section 80C of the Income Tax Act of 1961, as well as additional deductions of up to Rs 1.5 lakhs each year. Policyholders can also benefit from exemptions under Section 10(10)D when receiving any sum as part of their insurance policy's maturity benefits.
Deductions and Tax Benefits Under Section 80C
The following are the tax benefits that policyholders can claim under Section 80C
- Individual assessees as well as HUFs (Hindu Undivided Families) are eligible for tax deductions under this section. For individual assessees, the following persons are eligible to receive tax benefits
- The individual himself
- The individual assessee's children
Tax Benefit under Section 80D
Although Section 80D is primarily intended for health insurance plans, some term plans can also profit from it. Policyholders who have selected the Hospital Care, Surgical Care, and Critical Illness riders may be eligible for deductions. The major prerequisites for availing tax benefits under this section are listed below -
- Tax benefits of up to Rs.50,000 can be availed in case the policyholder's parents are above the age of 60.
- If you purchased the policy in your parents' name, you could receive tax benefits of up to Rs.25,000.
- Tax benefits can be availed if the amount is not more than Rs.25,000.
Tax Benefits under Section 10 (10D)
The main conditions that must be met in order to avail tax benefits under Section 10 (10D) are given below:
- If the compensation exceeds Rs.1 lakh and the policyholder's PAN is in file with the insurance firm, 1% TDS will apply.
- The sum assured must be 10 times the total premium or 10% lesser than the total premium to avail tax benefits.
- In case any bonuses are received because of the policyholder's death, if the policy has been surrendered, or any sum assured has been received when the policy has matured.
Under term insurance plans, several tax benefits can be claimed by the policyholder or his/her family/nominee. Certain tax benefits can be claimed in case riders have been added to the policy as well.
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FAQs Term Life Insurance for Tax Benefits
- Is term insurance covered under Section 80C?
Individual taxpayers can save tax on term insurance premiums paid through Section 80C of the Income Tax Act.
- Term insurance falls under which section - 80C or 80D?
Section 80C covers term insurance tax benefits. Term insurance policyholders with Critical Illness, Surgical Care, and similar extra coverages can additionally save taxes on premiums paid under Section 80D of the Income Tax Act.
- Can Section 80C tax breaks be used for other investments?
Yes, tax breaks under Section 80C are not restricted to term insurance premiums, but also include other investments.
- What is the tax deduction limit for seniors under 80D?
The highest annual tax deduction for premium payments under Section 80D for older citizens is Rs 50,000.
- Are death benefits from a term insurance policy taxable?
No, the death benefit is exempt from income tax under Section 10(10D) of the Income Tax Act, subject to the applicable restrictions and limitations.
- What is the maximum tax advantage allowed under Section 80C for term insurance policies?
Section 80C caps tax benefits at one and a half lakh rupees per fiscal year.
- Who qualifies for tax breaks under Section 80C of the Income Tax Act for term insurance policies?
An Indian resident can claim tax benefits on term insurance premiums paid. The policy should be in their name, or the names of their spouse or children, and they should be both the policyholder and the premium payer. A policy should not be relinquished before the expiration date
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