Term Insurance Tax Benefits

Tax Benefit Under Section 80C/ 80D

 

Many people ask, “term insurance comes under which section of Income Tax Act,1961?” While the base premium deduction qualifies under Section 80C (in case of old tax regime), health-related riders with term insurance can also give tax deduction under Section 80D (in case of old tax regime).

 

Section 80D usually applies to health insurance premiums. However, if you add riders like Critical Illness Benefit  Rider  or Surgical Care Rider to your term plan, the premium paid for those riders can be claimed under this section.

 

The payout from these riders can help cover medical costs. The premium you pay for such riders is eligible for a tax deduction under Section 80D.

 

Tax Deduction Limits Under Section 80D

 

Covered Individuals	For Self, Spouse & Dependent Children	For Parents	Total Deduction Limit
All insured persons under 60 years of age	₹25,000	₹25,000	₹50,000
If parents are above 60 years of age	₹25,000	₹50,000	₹75,000
If both self and parents are above 60 years of age	₹50,000	₹50,000	₹1,00,000

Keep in mind, only rider premiums related to health are considered under Section 80D (in case of old tax regime). Other riders (like accident benefit riders) do not qualify for this deduction.

 

Tax Benefits on Term Insurance Riders

 

You can improve term insurance plan coverage with health-related riders such as Critical Illness Cover and the premium for such riders can be deducted from taxable income because it is eligible under section 80D (in case of old tax regime). The tax deduction for individuals is up to ₹25,000 and for senior citizens up to ₹50,000, thus you can easily maximise tax savings while increasing health-related protection.

 

How to Choose the Best Term Insurance Plan for Maximum Tax Savings

 

• Select a term insurance plan amount that is sufficient for the , future needs and  lifestyle of your family. 
• Make sure annual premium (paid on yearly basis) is within 10% of the sum assured amount in order to claim Section 80C tax benefit (in case of old tax regime). 
• You may also select health-related riders like Critical Illness Benefit Rider etc  These  riders are available at an additional nominal premium and give added coverage. For more protection and deductions under Section 80D (in case of old tax regime). 
• Select term insurance plans with a cover period of more than 15-20 Years. The idea is to lock the premiums at a lower rate for 20 to achieve long term cover for future financial needs. 
• Choose insurers with high claim settlement ratios for reliability and peace of mind.
  
  

How to Claim Tax Benefits for Term Insurance

 

For Salaried Individuals:

 

• Fill and submit Form 12BB to your employer with premium receipts.
  
  
• Declare your planned investments at the beginning of the financial year.
  
  
• Keep payment proofs for reference in case of tax audit.
  
  
• For Self-Employed Individuals:
• Show your premiums on the ITR form as part of your tax filing obligations.
• Claim deductions for base premiums under Section 80C and do the same for riders under Section 80D (in case of old tax regime).
  
  

Note: You can only claim the actual amount paid, not the full limit. GST paid is also eligible for deduction if applicable.

 

FAQs

 

Q1. What will happen on not paying the premium on time?

 

Your policy may expire after the grace period if you do not pay the premium timely. You will lose not only your coverage, but any tax advantages unless you revive the policy within permitted time frames.

 

Q2. Can I get term insurance tax benefits if I stop paying the premiums?

 

No tax benefits are available only if you are continuing to pay the premium. If you stop, your policy may lapse post the duration of the grace period, and you will lose deduction benefits under Section 80C and 80D.

 

Q3. How can I maximise term insurance tax benefits?

 

Choose an appropriate plan with health-related riders, maintain timely payments of premiums, and keep the premium amount stout within 10% of the sum assured. All of this would put you in a position to claim  benefits under Sections 80C and 80D (in case of old tax regime).

 

Q4. Is term insurance claim taxable?

 

No, money received by the nominee will be tax-free.

 

Q5. How much term insurance can be claimed tax-free?

 

Tax benefit under section 10(10D) has no maximum limit on the death benefit.

 

Q6. Can NRIs claim these tax benefits too?

 

Yes, NRIs can take term insurance tax benefits under sections 80C and 80D (in case of old tax regime) given that a) income is taxable in India b) they purchased the insurance from an insurance company based in India.

 

Q7. How do I calculate my term insurance tax deductions?

 

Add the base premium (eligible under 80C), and health-related rider premiums (eligible under 80D) (in case of old tax regime). Make sure you have limits on your total deductions otherwise you will not be entitled to deductions from your taxable income as prescribed by the Income Tax Act. 

 

Q8. Who is eligible to claim tax benefits on a term insurance premium? 

 

Any individual or a Hindu Undivided Family (HUF) can claim deductions on premiums paid for self, spouse, and children, r, may also claim tax deductions under section 80C and, if applicable, 80D (in case of old tax regime).