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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. 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. 

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

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.

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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. 

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.

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.

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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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 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

Is Term Insurance Tax-Free?

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.

What Is TDS On Term Life Insurance Policy?

TDS (Tax Deducted at Source) on Term Life Insurance Policies is structured as follows:

  1. Starting from October 2014, if you receive more than Rs 1 lakh from a life insurance policy that doesn't qualify for an exemption under Section 10(10D):

    • 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.

  2. The union budget for 2019 proposed:

    • 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.

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. 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.

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

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. 

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

  • Q: How can one calculate income tax deductions?

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

    Ans: The term insurance tax benefit 80D can be availed by the policyholder and their spouse, dependent children, and parents, only if their term plan has a health rider included in the base plan.
  • Q: 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.
  • Q: 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.
  • Q: 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.
  • Q: Is it required to pay GST on term insurance u/s 80C?

    Ans: GST is charged as per the applicable rates on the premium.
  • Q: 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.
  • Q: Are premiums for critical illness riders eligible for tax benefits under Section 80D?

    Ans: Yes, premiums paid for critical illness riders as part of your health insurance policy are eligible for tax benefits under Section 80D.
  • Q: Who can avail of tax benefits under Section 80D?

    Ans: Individuals and Hindu Undivided Families (HUFs) can avail of tax benefits under Section 80D for health insurance premiums.
  • Q: Can I claim deductions under both Section 80C and Section 80D for my term insurance premiums?

    Ans: Yes, you can claim deductions under both Section 80C and Section 80D for your insurance premiums. Section 80C covers life insurance premiums, while Section 80D covers health insurance premiums and riders, providing dual tax benefits.

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