Term Insurance: Tax Benefits under Section 80D

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. In this article, we will see the term insurance tax benefit 80D in detail. 

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What is The Term Insurance Tax Benefit Under Sections 80C and 10(10D)? 

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.

What is Section 80D of the Income Tax Act and What It Covers?

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.

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

If X is paying premium amounts for 3 term plans. One plan is for X, 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. 

X 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 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.

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 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.

Premium Paid For  Case I – Self Below 60 Years & Parents Below 60 Years Case II –  Below 60 Years & Parents Above 60 Years Case III – Self Above 60 Years & Parents Above 60 Years
Self, spouse, and dependent children Rs. 25,000 Rs. 25,000 Rs. 50,000
Parents Rs. 25,000 Rs. 50,000 Rs. 50,000
Upper Limit for Tax Benefit – Term Insurance  Rs. 50,000 Rs.75,000 Rs. 100,000

*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.

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.

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

Exclusions Under Section 80D of The Income Tax Act

Here is a list of all the exclusions of the term insurance under 80D of the Income Tax Act, 1961.

  • Premium Payment: For you to avail of the tax benefits under section 80D, you should be the one to pay the premiums yourself. If a third party pays the premium or if you pay the premium in cash, then you won't be eligible for the term insurance tax benefit.

  • 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.

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 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.

Five things to know before buying Term Plan Five things to know before buying Term Plan

FAQ's

  • How can one calculate income tax deductions?

    Ans. The policyholder can use the online income tax calculator tool to understand deductions related to his taxable income.
  • Who can avail of the tax benefits under 80D?

    Ans. The term insurance tax benefit 80D can be availed by the policyholder and his/her spouse, dependent children, and parents only if their term plan has a health rider included in the base plan.
  • What is the limit of the tax deduction for senior citizens under 80D?

    Ans.  If the policyholder's parents are above 60 years of age, the limit of tax deduction is Rs.50,000.
  • What is the tax deduction limit for ordinary citizens under 80D?

    Ans. Individuals under the age of 60 years can avail of term insurance tax benefit 80D for an amount not exceeding Rs. 25,000.
  • What are the rider covers that qualify for tax benefits?

    Ans. Term insurance add-ons such as critical illness rider, hospital care rider, surgical care rider, etc. can avail tax benefits under section 80D of the Income Tax Act, 1961.
  • Is it required to pay GST on term insurance u/s 80C?

    Ans. GST is charged as per the applicable rates on the premium.
  • Will the tax benefits be continued if I discontinue the term policy?

    Ans. You need to pay premiums to get term insurance tax benefits u/s 80C. The tax benefit is applicable to the total premium you pay in a financial year. In case you discontinue or fail to pay the premium, your term insurance plan terminates and your life coverage ceases to exist. The nominee will no longer get any type of financial benefit from the plan and you won't receive any term insurance tax benefit anymore.

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