Term Insurance Tax Benefits Under Sections 80C, 80D and 10D

Despite your hard work to achieve your dreams and take care of your family, you watch your money slip due to taxes when the year ends. Many methods exist to reduce taxes through various sections of the Income Tax Act. Of all your choices, term insurance is a useful method for saving taxes. It provides protection for your family from financial difficulties in the event of your passing. This pure protection plan offers various advantages, including life coverage, death benefit, peace of mind, and tax advantages. There are many methods to reduce taxes through various sections of the Income Tax Act. Out of all the choices you have, term insurance is a useful method for saving taxes. It provides protection for your family from financial difficulties in the event of your passing. This pure protection plan offers various advantages, including life coverage, death benefit, peace of mind, and tax advantages.

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What is Auto Insurance

What is Term Insurance?
What You Can Get With Term Insurance?
Understanding the Income Tax Act
Term Insurance & Income Tax Act 1961

Exemptions under Section 80C
Other Tax-saving
Conditions to Claim Under Section 80C
Who can Claim Tax Benefits
Term Insurance Tax Benefits under Section 10 (10D)
Term Insurance Tax Benefits Section 80D
Choosing the Right Term Insurance Plan for Maximum Tax Benefits
What makes Term Insurance necessary?
Conclusion
Frequently Asked Questions (FAQs)

What is Term Insurance?

The most basic type of Life Insurance is term insurance, which provides financial protection for a predetermined number of years. Since a term plan is a pure Life Insurance policy, your nominees will only receive the benefit if you pass away within the policy's term. If you outlive the policy term of your term insurance plan, you won't receive any money back. Paying a premium at a predetermined interval ensures your nominee gets the necessary financial benefit.

What You Can Get With Term Insurance?

Pure Protection

In contrast to other life policies, such as endowment or whole life, term insurance mainly involves risk management for a specific period.

Affordability

Term insurance premiums are normally pocket-friendly compared to other forms of life insurance policies.

Limited Coverage Period

Term insurance provides financial security for a determined time, such as 5, 10, 20, or even 30 years. If the insured person dies during the term, the insurance company pays the nominee a benefit as per the deceased’s policy.

Customisation

Critical illness coverage, accidental death benefits, and waiver of premiums are some of the common term insurance riders.

Understanding the Income Tax Act

The Income Tax Act is a legal framework that regulates the taxation of individuals, businesses, and other entities in India. The Act lays down rules and regulations for filing tax returns, paying taxes, and claiming tax deductions and exemptions. The Act is regularly updated with amendments and changes to keep pace with the country's evolving economic and social conditions.

The Income Tax Act is a comprehensive law that governs income tax in India. It is divided into several sections, each dealing with a specific aspect of taxation.

Term Insurance Comes Under Which Income Tax Act 1961?

Term insurance falls within the Income Tax Act 1961 provisions, specifically under Section 80C, Section 80D, and Section 10(10D).

Section 80C

Section 80C of the Income Tax Act exempts certain investments and costs from income tax. You can effectively lower your taxable income by claiming deductions of up to ₹1.5 lakh under Section 80C for investments in various financial assets, such as Life Insurance, PPF, NSC, ELSS, etc.

Section 10 (10D)

A Life Insurance policy's maturity proceeds are free from taxation under Section 10(10D) of the Income Tax Act, 1961, as long as the premium does not exceed 10% of the sum insured (for policies issued after April 1, 2012).

Section 80D

The Income Tax Act's Section 80D permits tax deductions for policyholders who have opted for term insurance riders. Premiums paid for critical illness, surgical care, or similar covers are eligible for deductions up to ₹25000.

Term Insurance Tax Exemptions under Section 80C

Searching for Term Insurance tax benefit under which section? Section 80C of the Income Tax Act allows taxpayers to claim deductions for investments and expenses made in a financial year. Some of the investments and expenses that qualify for deduction under this section include:

Term Insurance Premium Tax Benefit

Tax Benefit: Under Section 80C of the Income Tax Act, you can deduct up to Rs. 1.5 lakh from the premiums paid on your term insurance policies.
Investment Purpose: Provides financial security to your family in case of your untimely demise.

Equity-Linked Savings Scheme (ELSS)

Tax Benefit: ELSS investments qualify for deductions under Section 80C, similar to term insurance.
Investment Purpose: Long-term wealth creation through equity markets.

Public Provident Fund (PPF)

Tax Benefit: PPF deposits are eligible for Section 80C deductions.
Investment Purpose: Long-term savings with guaranteed returns.

National Pension Scheme (NPS)

Tax Benefit: Contributions to NPS qualify for deductions under Section 80C.
Investment Purpose: Retirement planning with market-linked returns.

Who can Claim Tax Benefits Under Section 80C?

To be eligible for Life Insurance tax benefits under Section 80C, an individual must be a taxpayer in India, either a resident or a non-resident.

Any Indian resident with taxable income is eligible for a Life Insurance deduction in income tax under Section 80C.
Must be a resident Indian individual or a Hindu Undivided Family (HUF).
Senior citizens (60 years and above) with taxable income are also eligible for deductions under Section 80C.
NRIs who earn income in India are also eligible for deductions under Section 80C.

Must have a Term Insurance policy in their name or that of their spouse or children

Term Insurance Tax Benefits under Section 10 (10D)

Section 10(10D) of the Income Tax Act states that the money the designated person receives upon the policyholder's death is tax-free. Additionally, the sum assured upon maturity is also tax-free. However, this exemption applies if certain conditions are met:

The annual premium for your term insurance should be less than 10% of the sum assured
If the payout amount is over ₹1,00,000, and the policyholder’s PAN is available, a TDS (Tax Deducted at Source) of 1% will be charged.

Term Insurance Tax Benefits Under Section 80D

Term Insurance tax benefit 80D allows term insurance policyholders with Critical Illness, Surgical Care, and similar coverage to save up to ₹. 25000 on premiums paid. The term insurance deduction limit for senior citizens' parents has been increased to ₹50,000.

You can opt for ACKO Life Critical Illness Benefit Rider to add more protection for your term insurance. The rider covers 21 critical illnesses, including life-threatening common illnesses among women, such as breast cancer, cervical cancer, fallopian cancer and ovarian cancer.

Choosing the Right Term Insurance Plan for Maximum Tax Benefits

Many individuals opt for term insurance plans for several reasons. It serves as a pure protection plan that ensures financial security. Apart from being affordable and customisable, investing in a term plan also offers tax-saving benefits. If you're considering purchasing a term plan primarily for tax advantages, here are essential factors to consider:

Ensure your plan offers flexible premium payment options that are eligible for up to ₹1.5 lakh deduction per annum.
Select a longer policy tenure to provide extended financial security to your family or nominees.
Enhance coverage by adding riders to your term plan, such as critical illness surgical care for tax benefits under Section 80D.

What makes Term Insurance necessary?

Even with all of term insurance's features and advantages, many people still question if they actually need it. These are some of the main justifications for why a term insurance policy might be advantageous for you:

To Keep Your Family Safe: Protecting your partner, parents, and kids is essential if you are the primary provider for your family. A straightforward method to guarantee their financial stability in the event of your death is to purchase a term insurance policy.

To Keep Your Resources Safe: Term insurance might help shield your family from the financial strain of your debts after your death if you have loans for assets like a house or vehicle. With this financial assistance, they can retain the assets you've worked hard to acquire, protecting them from the burden of unpaid bills.

Affordable Premium and Striking Vast Coverage: Purchasing a term insurance policy is a cost-effective method of protecting your family's finances. You can obtain sufficient coverage with affordable premiums, guaranteeing the financial stability of your loved ones. It's a wise decision that comforts you, knowing you've safeguarded your family without going over budget.

Frequently Asked Questions (FAQs)

Here’s a list of common questions and answers related to Term Insurance and Income Tax.

Who is eligible for tax benefits under Section 80C of the Income Tax Act for Term Insurance policies?

An Indian resident can easily claim term Insurance premium tax benefits. The policy should be in their name or their spouse's or children's name, and they should be the policyholder and payer of the premium. A policy should not be surrendered before its expiration date.

What is the maximum limit on tax benefits under Section 80C for Term Insurance policies?

Section 80C limits tax benefits to one and a half lakh rupees per financial year.

Can Section 80C tax benefits be claimed for other investments?

Yes, tax benefits under Section 80C are not limited to Term Insurance premiums but also other investments.

Are death benefits received under a Term Insurance policy taxable?

No, the death benefit is exempt from income tax under Section 10(10D) of the Income Tax Act, as per applicable terms and conditions.

What is the tax deduction limit for senior citizens under 80D?

The maximum tax deduction under Section 80D for premium payments for senior citizens is Rs 50,000 per year.

Is Term Insurance Covered Under 80C?

Yes, individual taxpayers can save tax on term insurance premiums paid under Section 80C of the Income Tax Act.

Term insurance comes under which section 80C or 80D?

Term insurance tax benefits come under Section 80C. Also, term insurance policyholders with Critical Illness cover, Surgical Care cover, and similar additional covers can also save taxes on premiums paid under section 80D of the Income Tax Act.

Is term insurance tax-free?

The amount received upon the policyholder's death is tax-free under Section 10(10D) of the Income Tax Act, provided the premium paid does not exceed 10% of the sum assured (for policies issued after April 1, 2012).

Life Insurance comes under which section?

Life Insurance comes under section 80C of the Income Tax Act.