What are Term Insurance Tax Benefits?

Let’s discuss term insurance tax benefits in India in detail:

Term Insurance Tax Benefits Under the Income Tax Act of 1961

Term insurance plans offer tax benefits under specific sections of the Income Tax Act, 1961. Here is a list of all the sections under which you can claim term life insurance tax benefits:

1. Term Life Insurance Tax Benefits Under Section 80C

   Under this section, the premium paid towards the term insurance plans are eligible for tax deductions under section 80C of the ITA, up to a maximum limit of Rs. 1.5 Lakhs per annum. This means that the premium amount paid towards a term plan can be deducted from your gross total income before computing the tax liability. 

   One of the important points that you should be aware of is that the upper limit of tax deductions are available under this section which also includes tax-saving FDs, tax benefits in PPF investment, and various other tax-saving tools.

   To claim the term plan tax benefits under section 80C, the term life insurance should have been active for at least 2 years. If the term plan is terminated before the end of 2 policy years, then the tax deduction claimed in the previous years will be considered as the income of the previous year.

   Certain conditions to avail of 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 tax deductions 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 tax benefit 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 above or equal to 15% of the Total Sum Assured.

2. Term Insurance Tax Benefit Under Section 80D

   Some term plans offer riders such as critical illness rider, which provide additional benefits in case the policyholder is diagnosed wuth a critical illness. Premiums paid toward these riders are eligible for tax deductions under section 80D of the Income Tax Act, up to a maximum limit of Rs. 25,000 per annum for self, spouse and dependent children. 

   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
   Indviduals (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

   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.

3. Term Insurance Tax Benefit Under Section 10(10D)

   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 amount 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.

GST on Term Insurance

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.

Who is Eligible To Claim Term Insurance Tax Benefits?

Here is a list of people who are eligible to claim term insurance tax benefits under the Income Tax Act of 1961. 

• Members of HUF (Hindu Undivided Families)

• Individuals

You can claim term plan 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.

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

Final Thoughts

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 top tax-saving tools. Every individual should be well aware of the term plan 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.

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