Term Insurance Tax Benefits

Tax Deduction Limits Under Section 80D

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

 

Which Payments Qualify for Tax Deductions Under Section 80D?

Under Section 80D (incase of old tax regime), you can claim tax deductions for specific health-related payments, helping you save on taxes just like a term plan tax benefit does for your life insurance.

You can claim a deduction of up to ₹25,000 for health insurance premiums paid (through any mode other than cash) for yourself, your spouse, dependent children, or parents. If you or your parents are senior citizens (aged 60 or above), the limit increases to ₹50,000.

Senior citizens without health insurance can claim up to ₹50,000 for medical expenses such as doctor visits, medicines, and medical aids. Contributions to CGHS or other approved schemes also qualify for a deduction of up to ₹25,000, except for parents.

You can also claim up to ₹5,000 for preventive health check-ups paid in cash, within the overall ₹25,000 or ₹50,000 limit. For instance, if you pay ₹23,000 for insurance and ₹5,000 for a health check-up, you can claim ₹25,000 in total.

 

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 term insurance income tax benefit while increasing health-related protection.

 

How to Choose the Right 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:

1. Fill and submit Form 12BB to your employer with premium receipts.
2. Declare your planned investments at the beginning of the financial year.
3. Keep payment proofs for reference in case of tax audit.

 

For Self-Employed Individuals:

1. Show your premiums on the ITR form as part of your tax filing obligations.
2. 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.

 

Key Takeaways

1. Term insurance offers dual advantages of life protection and tax savings under Sections 80C and 80D (old tax regime).
2. You can claim deductions for premiums paid for yourself, your spouse, dependent children, and parents, with limits up to ₹1,00,000 based on age criteria.
3. Health-related riders qualify for deductions under Section 80D (incase of old tax regime), enhancing both coverage and savings.
4. Preventive health check-ups and contributions to schemes like CGHS also qualify for deductions.
5. To maximise term insurance tax benefits, keep your annual premium within 10% of the sum assured and maintain timely payments.
6. Salaried and self-employed individuals can claim deductions by submitting proof of premium payments through Form 12BB or their ITR.

 

Conclusion

Term insurance protects your family’s financial future while also offering tax savings. By including eligible health riders and adhering to Section 80D limits, you can enjoy both security and valuable term insurance tax benefits.

 

FAQs

 

Q1. 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.

 

Q2. 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).

 

Q3. Is term insurance claim taxable?

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

 

Q4. How much term insurance can be claimed tax-free?

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

 

Q5. 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.

 

Q6. 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. 

 

Q7. Who is eligible to claim tax benefits on a term insurance premium? 

Any individual or a

 (HUF) can claim deductions on premiums paid for self, spouse, and children may also claim tax deductions under section 80C and, if applicable, 80D (in case of old tax regime).