Term Insurance Tax Benefits: Save Taxes and Secure Your Future

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

Let us take a look at term insurance comes under which section of the Income Tax Act, 1961:

1. Tax Benefits Under Section 80C:

   • This is the most common term insurance tax benefit that every Indian taxpayer can avail of under section 80C of the Income Tax Act, 1961.

   • The premium amount paid towards a term insurance plan is eligible for a tax deduction according to Section 80C of the Income Tax Act, 1961. You can claim a deduction up to Rs. 1.5 Lakh per annum.

   • One of the important aspects you should know about is the tax deductions. The upper limit available in these sections includes investment tax benefits in fixed deposits, PPF, and various other tax-saving tools.

     Important Facts Related to Term Insurance Tax Benefits u/s 80C 

   • The premium amount must be less than 10% of the sum assured to qualify for deductions under Section 80C.

   To understand term insurance comes under which section, Terms plans issued before 31st March 2012, the benefits in term insurance in tax are valid if the yearly premium is below 20% of the life cover.

2. Tax Benefits Under Section 10(10D):

   The death benefit received by your nominee is completely tax-free under Section 10(10D) of the Income Tax Act. These tax benefits on term insurance have no upper limit. This ensures your loved ones receive the full amount without any tax deductions. As a policyholder, you should also know that term insurance tax benefits u/s 10(10D) are subject to certain T&Cs. The death or maturity benefits under a term insurance plan are non-taxable if the premium amount paid during the policy term doesn't exceed 20% of the pre-specified life cover.

3. Tax Benefits Under Section 80D:

   Section 80D of term insurance allows tax deductions on the premium amount paid for health insurance plans. You have the option to avail of the term insurance tax benefit u/s 80D if you already have health-related riders, such as surgical care cover, critical illness cover, and others. In simple words, you can increase your tax savings on your term plan premiums by buying these riders while getting health insurance plan coverage. 

   While primarily associated with health insurance, term insurance tax benefits can also be claimed with health-related riders (such as critical illness cover) as they 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
   	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

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:

Tax Benefits on Term Insurance Riders

Term insurance riders enhance your policy coverage and offer extra tax benefits. Choosing specific riders under certain conditions can help maximize your term life insurance tax advantages. Let us take a look at the riders in term insurance comes under which section:

• Critical Illness Rider: Adding this rider to your term insurance makes you eligible for additional tax deductions under Section 80D.

• Return of Premium (ROP) Rider: Opting for this rider increases your premium, enabling higher tax savings under Section 80C. 

How to Claim Tax Benefits For Term Insurance?

Claiming tax benefits on term insurance premiums depends on whether you are a salaried individual or self-employed. Check the steps below to claim your term insurance tax benefits:

1. For Salaried Individuals

   Salaried individuals can claim tax deductions under Section 80C and Section 80D (for applicable riders like Critical Illness) by following these steps:

   • Submit Form 12BB:

     • Form 12BB is an investment declaration form used to inform your employer about your planned tax-saving investments, including term insurance.

     • Fill and submit this form at the start of the financial year to ensure your premiums are reflected in your Form 16.

   • Keep Documents Handy:

     • Keep your premium payment receipts and premium certificate as proof.

     • While these documents are not required during initial submission, you may need to provide them if the tax department asks for verification.

2. For Self-Employed Individuals

   Self-employed individuals can claim tax benefits by declaring their term insurance for self-employed premiums while filing their Income Tax Return (ITR):

   • Declare Premiums in ITR Form:
     Include the premium payments under the relevant sections (80C and 80D) when filing your ITR to claim deductions.

   • Understand Deduction Limits:
     For Section 80D, you can claim up to ₹25,000 per year for premiums paid on riders like Accidental Benefit or Critical Illness.
     However, you can only claim the actual premium paid. For example, if your annual premium is ₹12,000, you can claim that amount, not the full ₹25,000 limit.

   • GST on Premiums:
     If GST is not included in your premium, you can claim it as part of your tax deduction.

Eligibility Criteria to Claim Term Insurance Tax Benefits

You can claim term insurance tax benefits on premiums paid for 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: As per the latest updates in the GST rules, now 0% GST will be levied on term insurance premiums. NRIs too, can claim a GST waiver on term insurance for NRI premiums paid via NRE (Non-residential External) bank accounts that support freely convertible currency.

Wrapping It Up!

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

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