Term insurance plans in India are the most affordable way to make provisions for your family in case of your life’s eventualities. Pure life cover insurance can be supplemented with various riders to enhance the coverage it offers to protect your family’s financial future. However, the benefits covered by a term plan and riders are only some of the advantages of buying these insurance products.
The Tax Benefit of a Term Insurance Plan
Under the Income Tax Act 1961, term insurance plans in India are eligible for several tax benefits under various sections. These include:
Deductions Under Section 80C
The term insurance tax benefit offered under this section of The Income Tax (IT) Act of 1961 allows you to claim the premiums you pay towards a term insurance plan as a tax deduction from your taxable income. The amount that can be claimed is capped at INR 1.5 lakh. Subject to this cap, premiums paid for a sum assured of up to 10% of the sum assured can be claimed as deductions (for policies issued after 31st March 2012). For term plans issued on or before 31st March 2012, the limit is 20% of the total sum assured.
Tax Exemption Under Section 10 (10D)
The death benefit provided by a term life insurance plan to the nominee is completely exempted from taxes under section 10(10D) of the Income Tax Act of 1961. Deductions Under Section 80D
Section 80D of the Income Tax (IT) Act, 1961, states that the premiums paid for health riders like critical illness benefit rider with term insurance plans in India can also be claimed as deductions. However, for people below 60 years, these deductions are capped at INR 25,000 and at INR 50,000 for people who are 60 years of age or above.
Term Insurance Tax Benefit for Nominees
In case of the policyholder’s unfortunate death during the policy term, death benefits and accrued bonuses (if any), as outlined under the policy, are paid out to the nominees. Under Section 10 (10D) of the Income Tax Act, the amount received as death benefits is not taxable.
Eligibility Requirements for the Tax Benefits
To avail the numerous tax benefits that come with the protection of term insurance plans in India, one must meet the following eligibility criteria:
- Deductions can be availed by Hindu Undivided Families (HUFs) and individual taxpayers.
- Deductions and tax exemptions can also be availed by Non-Resident Indians (NRIs).
- Premiums that one pays for themselves, their spouse, or dependent children are all eligible to be claimed as deductions, up to an amount of INR 1.5 Lakh.
- The deductions and exemptions are only applicable for the financial year during which the premiums were paid or the benefits were received.
Conditions for Claiming Term Insurance Tax Benefits
Certain conditions must be kept in mind when claiming the tax benefits offered by term insurance plans:
Section 80C
- The maximum amount of term insurance premiums that can be claimed as deductions are limited to INR 1.5 lakhs. The aggregate amount paid as a premium must not exceed INR 1.5 lakhs if you hold multiple policies.
- For policies issued on or before 31st March 2012, the premium paid should not exceed 20% of the sum assured. For policies issued after 31st March 2012, the premium should be less than 10% of the sum assured.
Section 80D
- This can only be availed if you have opted for a health-related rider with your term insurance plan.
- Under this section, only the premiums you pay toward the rider are eligible to be claimed as deductions. Deductions are limited to INR 50,000 and INR 25,000 for people who are above 60 years of age and for people below 60 years of age, respectively.
- Premiums of riders for term plans purchased for your parents can also be claimed as deductions up to INR 50,000 (if your parents are 60 years of age or older) or INR 25,000 (if your parents are less than 60 years of age).
Section 10 (10D)
Term insurance policy’s death benefit is exempted from income tax under Section 10(10D),
Tax Refunds
Whether you already have a term insurance plan in place or are planning to buy one, ensure you are well aware of the term insurance tax benefits you are eligible for and the criteria you have to meet. This way, you can ensure you choose the right features and coverage (like choosing a premium that is less than 10% of the sum assured) to avail the maximum benefits from the policy.
