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- Does Term Insurance Have Tax Benefit?
Does Term Insurance Have Tax Benefit?
Buying a term insurance plan is important as it provides a financial safety net to your family when you are around anymore. The sum assured that is received by the family will help them to be financially independent and accomplish all financial objectives or liabilities if any.
But, do you know that buying a term insurance plan is also an ideal way to save taxes as well.
Choosing the best term insurance plan in India can help you to fulfil all the responsibilities and provide financial stability in your absence to the family. In the process, you can access the tax benefits as well. This is one of the key reasons that make this life insurance product a more preferred choice.
In this article, let us unfold the tax-saving benefits one by one available within the term insurance plan in India.
Benefit Within Section 80D of the Income Tax Act
When your term insurance plan either has an add-on cover or an in-built cover in the form of the hospital care rider, critical illness rid, surgical care rider, and so forth then you can easily access the tax benefits.
Now, wondering who can avail the tax benefits within Section 80D.
- Yourself
- Your parents
- Spouse
- Dependent Children
For the deductions listed below are the clauses:
- The tax deductions can be accessed only for the sum that is not more than Rs 25, 000.
- You will be entitled to a high tax benefit of Rs 50, 000 only when you have availed the life insurance plan name in the name of your parent who is a senior citizen.
- And if you have availed the life insurance plan in the name of your parents then you will be entitled to an additional benefit of tax deduction of Rs 25,000.
Moreover, a Hindu Undivided Family member can also access the tax benefits within this section. When you are not happy with a term insurance policy then you can return the same within the free-look period.
Benefit Within Section 80C of the Income Tax Act
It permits tax exemption till Rs 1.5 lakh every year on the term insurance plan.
Now, wondering who can avail the tax benefits within Section 80D.
- Yourself
- Spouse
- Dependent Children
For the deductions listed below are the clauses:
- If the term insurance plan is issued either on or after 2012, April 1 then the tax deduction will be applicable for the complete premium sum valued up to ten per cent of the highest sum assured.
- If you are suffering from any illness or have a disability, then the tax deduction will be applicable when you have not paid the premiums to fifteen per cent high of the complete sum assured. Again this clause is applicable if the term insurance plan is issued either on or after 2013, April 1. Moreover, the Hindu Undivided Family member can also access the tax benefits within this section.
- And if you have availed the life insurance plan in the name of your parents then you will be entitled to an additional benefit of tax deduction of Rs 25,000.
- If the term insurance plan is issued either on or after 2012, March 31 then the tax deduction will apply for the complete premium sum to the highest of twenty per cent of a sum assured.
Benefit Within Section 10 (10D) of the Income Tax Act
This essentially offers tax exemption benefit. Any sum that is received within death benefit for a term insurance plan remains exempted from the tax. It is of not much concern whether the sum is received from any foreign nation or India.
This clause will not be applicable for the following:
- When the sum is received within Section 80DDA (3) or Section 80DD (3).
- When the sum is received within a Keyman Insurance Policy.
- When the sum received is not a part of a death benefit of the policy issued wither on or after 2003, April 1but on or before 2012, March 31. Besides, it will not be applicable for any exemption if the complete paid premiums during the policy tenure are higher than 20 per cent of the received complete sum assured.
- If the term insurance plan is issued either on or after 2012, April 1 then the tax exemption will be applicable for the complete paid premium that doesn’t cross ten per cent of the sum assured.
The Bottom Line
Undoubtedly, a term insurance plan ensures tax benefit; however that does not mean that you make it sole criteria for choosing the plan.
Moreover, it is prudent to have in-depth knowledge in regards to the provision of claiming tax within a term plan and accordingly file your tax returns. Besides, make sure that you are upgraded with the amendments within the income Tax Act.
A term insurance plan will certainly help you to make the lives and financial future of the family secured and also help you to save money.
Happy tax saving!
Written By: PolicyBazaar - Updated: 16 November 2020
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