Section 80C Under Term Insurance
A range of tax deductions and exemptions are provided under several sections of the ITA (Income Tax Act). Among these instruments is a term plan. In addition to the tax savings associated with term insurance, policyholders receive solid life insurance coverage for their families and can enjoy long-term peace of mind.
What is Term insurance? A term insurance plan provides considerable coverage for a relatively modest price. If the policyholder meets with an unfortunate accident during the policy period, the nominee receives the benefits.
Tax Benefits for Term Insurance Under Various Income Tax Sections
- Allowance under Section 80C: Section 80C permits a tax deduction of up to 1.5 lakhs for the premiums paid on a term insurance policy.
- Tax Benefit under Section 10 (10D): The death benefit beneficiary is also eligible for tax benefits under Section 10 (10D).
- Allowance under Section 80D: Section 80D allows a deduction of up to 25,000 for premiums paid on term insurance policies with critical illness coverage.
Tax Advantages for Life Insurance Benefits
The life insurance policy’s primary objective is to pay a death benefit to the policyholder’s beneficiaries. The benefit is guaranteed by an insurance policy and paid to the beneficiaries if the insured dies during the policy’s term. Most of the benefit is paid out after the claim has been filed, allowing the beneficiary to pay for daily expenses.
In addition to providing financial security for your loved ones, a life insurance policy also allows you to deduct the premium payments from your total income. However, most individuals must be aware of such tax benefits on payouts.
Tax Benefit on the Received Benefit Payment:
Under Section 10D of the Income Tax Act, the amount received as a death benefit under an insurance policy is entirely free from taxation. Normal term plans pay the death benefit during the duration of the policy. In contrast, the return of premium term insurance plans reimburses the premium paid upon maturity if the insured lives the policy term. Even this premium return is tax-free according to Section 10 (10D). * Currently, there are 2 tax regimes in India – new and old. To get the tax benefit you desire, choose the correct one after consulting an expert. You can opt for a regime change during the next financial year.
The death benefit obtained under the following conditions is not exempt from taxation:
- Any benefit obtained pursuant to Section 80 DD(3) or Section 80DDA(3)
- Any amount paid out by a Keyman insurance policy
Individuals frequently employ Section 80C of the Income Tax Act to reduce their tax liability, where a maximum of Rs 1,50,000 is allowed as a deduction for all listed investments and instruments. It comprises various instruments, as well as payments such as home loan repayment, college fees for children, life insurance premiums, etc.
The following conditions must be met to qualify for term insurance tax benefits under Section 80C:
- Annual premiums should be at most 10% of the amount insured. If the premiums surpass 10%, proportional deductions will be made.
- The deduction will only apply to insurance issued before March 31, 2012, provided the annual premium does not exceed 20% of the sum guaranteed.
- Per Section 80C(5), if a policy is voluntarily surrendered or cancelled within two years of its inception, the policyholder will not receive Section 80C tax benefits on premium payments.
What is Term insurance’s taxation benefit under Section 80D?
The section is traditionally allocated for only health insurance policies that provide a deduction for health insurance coverage purchased for oneself, one’s spouse, children, or parents, with varying deduction limits and circumstances.
However, specific term insurance policies also qualify for Section 80D tax benefits. Conditions for benefit 80D under term insurance include:
- Deductions under Section 80D are available for amounts not exceeding Rs. 25,000.
- If you have purchased insurance coverage for your parents, you are eligible for an additional Rs. 25,000 in tax deductions.
- If your parents are senior citizens, you can deduct up to Rs. 50,000 from your income.
- Exemption from Term Insurance Tax under Section 10 (10D)
- According to Section 10(10D) of the Income Tax Act, the sum insured received upon maturity, surrender, or the policyholder’s passing away is exempt from taxation. Section 10 also exempts bonuses obtained with such an amount (10D).
Conditions for tax exemption on term insurance under Section 10(10D):
- The Section 10D term insurance tax benefit is applicable if the premium is less than 10 per cent of the sum assured or if the total assured is at least ten times the premium.
- 1% TDS is applied if the payout exceeds Rs. 1,00,000 and the policyholder’s PAN is available to the insurer.
Policyholders may also choose to receive their term plan payout in the form of a lump sum, a monthly income, or a combination of a lump sum and a monthly payment.