Term Insurance Tax Benefits under Section 80D

What Is Section 80D?

Section 80D of the Income Tax Act allows tax deductions for premiums paid towards health insurance policies. This provision encourages taxpayers to secure their health while enjoying tax savings. But did you know that term insurance with health-related riders can also qualify for deductions under 80D?

Does Term Insurance Come Under Section 80C or 80D?

Typically, term insurance premiums are covered under Section 80C, which offers deductions of up to ₹1.5 lakh annually. However, premiums for health-related riders attached to your term plan—such as Critical Illness Cover, Surgical Care Cover, or Hospitalization Benefits—are eligible for additional tax deductions under Section 80D.

How Can Term Insurance Be Claimed Under Section 80D?

You can avail of the tax benefits with term insurance under 80D of the Income Tax Act by including important term insurance riders like critical illness riders to your base plan. Section 80D originally offered benefits in health insurance plans. Still, by including term insurance’s health riders into your base plan, you can receive tax benefits worth Rs. 75,000 on the total 80D term insurance premiums you paid in a year. You can claim the remaining premium amount under other sections of the Income Tax Act.

Moreover, certain Section 80D 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.

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Let’s understand the term insurance tax benefit 80D with the help of an example: 

Rahul has purchased 2 term insurance plans and is paying a premium for these plans. One plan is for himself and the other one is for his spouse. Both of them are below 60 years of age and have added health riders like critical illness on their plan. Therefore, Rahul can claim term insurance tax benefits against the premiums paid u/s 80C of the ITA. 

If Rahul had bought term insurance for his parents, who are above 60, they would have added health riders in their base term plan. Then, he could also claim term life insurance tax benefits up to 75,000 on the premiums paid.  

In such cases, you can claim an extra Rs. 50,000 u/s 80D deduction. Overall, you can claim the benefit of term insurance under 80D up to Rs. 75,000/year.

How to Claim Term Insurance Tax Benefit Under Section 80D of the Income Tax Act?

Since the tax benefits for term insurance under 80D can only be claimed for health insurance plans, you need to ensure you only file for a claim under this section if your term life insurance qualifies for this deduction. You can do that by reviewing 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.

Conditions To Avail of Term Insurance Tax Benefits Under Section 80D

Here are some of the term insurance comes under which section. Some of the conditions under which the policyholder can make term insurance tax benefit 80D claims 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.

*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 to understand term insurance comes under which section.

• 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.

What is the Eligibility Criteria to Claim Tax Benefits?

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

• Yourself

• Children

• Spouse

• Dependant Parents

• Dependant 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.

What are the Payments Eligible for Deductions under Section 80D?

Below is a list of the payments that are eligible for section 80D tax deductions:

• 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

What Is TDS On Term Life Insurance Policy?

As per the Budget 2024, it is proposed that TDS (Tax Deducted at Source) on Term Life Insurance Policies u/s 194A of the Act be reduced from 5% to 2%.

What are the Tax Benefits on Riders of Term Insurance?

Insurers offer various term riders to enhance coverage, and these riders can offer additional term insurance tax benefits beyond just strengthening the coverage. You may be eligible for extra tax advantages depending on the term insurance rider you select and its associated terms. 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 Section 80D term insurance tax deductions of the Income Tax Act.

• Return of Premium Rider: Opting for the Return of Premium rider when purchasing an 80D term insurance 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 term life insurance tax benefits.

These riders enhance your financial protection and provide an opportunity to optimize your tax planning.

What are the Exclusions under Section 80D of the Income Tax Act, 1961?

Here is a list of all the term insurance exclusions 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 term insurance will not apply to group health insurance premiums, but if you make any additional payments to increase the sum assured, the term insurance tax benefit will apply to the extra amount paid.

• GST: No tax benefits on the GST and CESS charges will be applied to the plan.

Apart from this, there are other exclusions also:

• Also, it doesn’t apply to a premium paid on behalf of working/ employed children or other relatives.

• It is not important if the premium amount is paid in cash.

Important Points to Remember

• Deductions under Section 80D are separate from those under Section 80C, enabling you to save more on taxes.

• To claim these benefits, ensure that your policy explicitly mentions the health-related riders.

• Maintain proper documentation of your premium payments for filing tax returns.

Summing Up

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 with section 80D term insurance of the Income Tax Act. This section is only applicable to term insurance with health riders included in the plan. By understanding term insurance comes under which section you can not only secure financial security but also peace of mind from financial hardships.

Note: Check all the best term insurance plan in India.

Note: You should also check the benefits of term life insurance if you are planning to purchase the term insurance plan.

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