Term Insurance Tax Benefits

How Different Tax Regimes Affect Your Term Insurance Tax Benefits?

As per the new tax regime launched in the Union Budget 2023, earning individuals can choose to save on taxes from any of the two tax regimes, old or new tax regimes. 

Here is a list of comparisons of the tax benefits of term insurance that you can claim under both tax regimes. 

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, 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 tax exemption on the term insurance payout amount under section 10(10D) in the event of your unfortunate death.

Term Insurance Comes Under Which Sections of the Income Tax Act (ITA), 1961?

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 all the sections offered by the Government of India, under which you can claim term life insurance tax benefits:

1. Term Life Insurance Tax Benefits Under Section 80C

   To answer is term insurance covered under 80C, you can get a tax deduction of up to Rs. 1.5 Lacs u/s 80C for the premium amounts paid towards your term insurance plan. This 80C section 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 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 are 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 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, Section 80D allows a deduction of up to Rs. 25,000 on premium amount paid for term insurance plans with a coverage of critical illness. 

   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

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 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.

What Is TDS On Term Life Insurance Policy?

TDS on Term Life Insurance Policy are as follows:

1. Starting from October 2014, if you receive more than Rs 1 lakh from a life insurance policy not exempt under Section 10(10D):

   • 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.

2. The union budget for 2019 proposed:

   • Increasing TDS on insurance policy proceeds to 5%.

   • Applied to the income portion of proceeds paid or due on or after September 1, 2019.

What are the Tax Benefits on Riders of Term Insurance?

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.

What is GST on Term Insurance?

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.

What Is The Eligibility Criteria To Claim Term Insurance Tax Benefits?

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.

Is Term Insurance Tax-Free?

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.

Wrapping It Up!

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 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.

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