Term Insurance provides financial security and protection to your family in case of your unexpected death within the policy term. It is a great way of securing your family’s future while saving on your yearly taxes. The Government of India offers term insurance tax benefit under sections 80C, 80D, and 10(10D) of the Income Tax Act. Various tax exemptions and deductions are accessible within the provisions of the Income Tax Act, 1961, and Section 80D is among these options. In this article, we will see the term insurance tax benefit under Section 80D in detail.Read more
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Apart from the life coverage and several other benefits, acquiring a term plan also provides tax benefits to the policyholder. The government of India offers special tax benefits for people who want to purchase term life insurance. Under sections 80C, 80D, and 10(10D) of the Income Tax Act, 1961, you can claim tax deductions as follows:
Under Section 80C
You can save up to Rs. 1.5 lacs on your total premiums paid every year under section 80C of the ITA, 1961.
Under Section 80D
You can save up to Rs. 75,000 on your term insurance premiums if your plan includes health benefit riders.
Under Section 10(10D)
The term insurance payout received by your family in case of your unfortunate death will be tax-free under section 10(10D).
Let us see the importance and benefits of term insurance tax benefit 80D in detail.
You can avail of the term insurance tax benefit under Section 80D of the Income Tax Act by including important term insurance riders like critical illness riders to your base plan. Section 80D originally offers benefits in health insurance plans, but by including term insurance’s health riders into your base plan, you can receive tax benefits worth Rs. 75,000 on the total premiums you paid in a year. You can claim the remaining premium amount under other sections of the Income Tax Act.
Moreover, certain term insurance plans come with riders, like the critical illness rider, that offer extra benefits if the policyholder is diagnosed with a critical illness. Premiums paid for these riders qualify for tax deductions under Section 80D of the Income Tax Act, with a maximum annual limit of Rs. 25,000 for the policyholder, their spouse, and dependent children.
Let’s understand the term insurance tax benefit 80D with the help of an example:
If Rahul is paying premium amounts for 3 term plans. One plan is for Rahul, one for his/her spouse and the third is for their kids. All of them are below 60 years of age and avail health insurance riders on your plan. Overall, you can claim deductions against the remaining premium u/s 80C of the ITA.
Rahul can also pay premiums for term insurance plans for his/her parents. If you have bought separate plans for your parents who are above 60. Both types of term insurance plans have health insurance riders also. You can claim an extra deduction of Rs. 50,000 u/s 80D. Overall, you can claim benefits of Section 80D up to Rs. 75000/ year.
Both plans include health riders. In such cases, you can claim an extra deduction of Rs. 50,000 u/s 80D. Overall, you can claim the benefit of Section 80D up to Rs. 75,000/year.
Since the tax benefits for term insurance under 80D can only be claimed for health insurance plans, you need to make sure you only file for a claim under this section if your term life insurance qualifies for this deduction. You can do that by going through your plan details and assessing if you have any health riders like term insurance’s critical illness riders included in your base plan. If you are not sure you can also reach out to any financial adviser or your insurance providers to gain better clarity on this. Always be completely sure if your plan qualifies for this deduction as a wrong claim may result in you losing all the term insurance tax benefits altogether.
You can claim term insurance tax benefit 80D when you file for returns for tax deductions at the end of each assessment year. You can only claim tax deductions for term insurance under 80D if you have opted for a health rider such as critical illness, hospital cash, or surgical care rider along with your base term plan.
Some of the conditions under which the policyholder can make claims under section 80D are as follows.
If the policyholder has chosen a critical illness term policy for him/her and his/her family (including his/her spouse and children). If the life insured along with his/her family member is below 60, then he/she has met the criteria for a tax deduction of up to Rs 25,000.
If the policyholder has opted for a similar and separate term policy for his/her parents and the life insured's parents are above 60 years of age, then the individual is eligible for tax deduction up to Rs. 50,000.
The limit of deduction is illustrated in the below table.
|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|
*All savings are provided by the insurer as per the IRDAI approved insurance plan. Standard T&C applies.
The individual must consider the below clauses related to the deductions.
Suppose the individual's term insurance policy is issued on or after April 1, 2012. In that case, a tax deduction is applicable only for the total premium amount up to 10% of the maximum sum assured.
Suppose the applicant's term insurance plan is issued on or before March 31, 2012. In that case, a tax deduction is applicable only for the total premium amounting to a maximum of 20% of the sum assured.
Suppose the individual is suffering from any physical disabilities or critical illness. In that case, a tax deduction is applicable if the policyholder has paid premiums amounting to 15% or more of the total sum assured. The above clause is again applicable for an insurance plan that has been issued on or after April 1, 2013. Moreover, an individual of the Hindu Undivided Family (HUF) can also avail of the above tax benefits under this section.
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Deductions can only be claimed by persons and a HUF i.e., Hindu Undivided Family on the premium amount being paid for their term insurance plans or on the benefits received by them. You can only claim tax benefits on insurance bought for
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.
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
Yes, the death benefits received from a term insurance policy are entirely exempt from taxation. However, the maturity and survival benefits are subject to taxation in accordance with the current tax regulations.
According to the latest Union Budget, term insurance plans issued before April 1, 2023, will continue to enjoy tax-free maturity and survival benefits under the previous budget rules. However, policies issued after April 1, 2023, will only incur taxes on the maturity or survival amount if the annual premium for the term insurance exceeds Rs. 5 Lakhs. For policies with annual premiums below Rs. 5 Lacs, the maturity amount will remain tax-exempt under the new rules.
TDS (Tax Deducted at Source) on Term Life Insurance Policies is structured as follows:
The insurer deducts 1% as TDS before making the payment, including any bonuses.
If you receive less than Rs 1,00,000, no TDS is deducted.
The received amount is subject to full taxation, and you can later claim a TDS credit when filing your Income Tax Return.
Increasing the TDS rate on insurance policy proceeds to 5%.
This change applies to the income portion of proceeds paid or due on or after September 1, 2019.
Insurers offer various term riders to enhance coverage, and these riders can offer additional term insurance tax benefits beyond just strengthening the coverage. Depending on the term insurance rider you select and its associated terms, you may be eligible for extra tax advantages. Here's how term plan riders can contribute to additional tax benefits:
Critical Illness Rider: When you add the Critical Illness rider to your term plan, you can qualify for tax deductions under Section 80D of the Income Tax Act.
Return of Premium Rider: Opting for the Return of Premium rider when purchasing a term plan increases the premium amount. This can help you save more money on your tax liability under Section 80C. You can use an online term insurance calculator to understand how these riders affect the premium and your potential tax benefits.
These riders not only enhance your financial protection but also provide an opportunity to optimize your tax planning.
Here is a list of all the exclusions of the term insurance under 80D of the Income Tax Act, 1961.
Premium payment: If the policyholder does not pay premium amounts on a regular basis, the tax savings benefit will not be valid in these scenarios.
Group Health Insurance: Section 80D will not be applicable to group health insurance premiums but if you make any additional payments to increase the sum assured, the term insurance tax benefit will be applicable on the extra amount paid.
GST: There will be no tax benefits on the GST and CESS charges applied to the plan.
Apart from this, there are other exclusions also:
Also, it doesn’t apply to a premium amount paid on behalf of working/ employed children, or other relatives.
It doesn’t hold any importance if the premium amount is paid in cash.
Term insurance plans can not only secure your family’s future, and help fulfill their goals, but also help you save on your yearly taxes. You can claim tax deductions of up to Rs. 75,000 under section 80D of the Income Tax Act. This section is only applicable to term insurance with health riders included in the plan. A term insurance plan can thus offer peace of mind to the policyholder and secure the individual’s family from financial hardships.
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