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Term Insurance Tax Benefits: Deductions under Section 80C, 80D and 10(10D)

A term insurance policy is a protection-oriented life insurance policy that can help create a secured financial corpus for the family in the case of the life insured’s untimely demise. It also helps prepare the family for unplanned emergencies after the breadwinner passes away.Read More

 

While term insurance plans offer the benefits of financial security and peace of mind, they also help save taxes. When investing in a term insurance plan, you can get multiple tax benefits. Let’s have a look at the term plan tax benefits– Read Less

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Written ByPalak Bagadia
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Palak Bagadia, Associate – Digital Marketing at Bajaj Allianz Life, with experience spanning content and performance marketing, recruitment, employee engagement in the BFSI industry.
Reviewed ByRituraj Singh
AboutRituraj Singh
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Rituraj Singh,With over 6.5 years of experience in the insurance industry, Rituraj Singh, Manager- Product & Brand Marketing at Bajaj Allianz Life Insurance overlooks new product launches, compliance, and brand projects, leveraging artificial intelligence and technology to enhance outcomes.
Written on: 16th Oct 2024
Modified on: 16th Oct 2024
Reading Time: 15 Mins
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Available tax benefits under different Sections of the Income Tax Act 1961

 

As mentioned earlier, a term insurance plan offers multiple tax benefits. These benefits under the provisions of the Income Tax Act, 1961 (the Act) are as follows –

 

1. Tax benefit under Section 80C:

 

Under this section, the premium that you pay for the term plan is allowed as a deduction from your taxable income. The deduction limit allowed under Section 80C of the Act is up to Rs.1.5 lakhs. However, the benefit of Section 80C is available only under the old tax regime. Individuals opting for the new tax regime cannot claim this deduction3. Use the term insurance calculator to calculate your premium and invest accordingly.

The deduction is allowed as a minimum of the following:

a. Actual premium paid or

b. 10% of the death sum assured for term policies issued on or after 1st April 2012.

c. 20% of the death sum assured for term policies issued before 1st April 20121

Further, if the life insured has any sort of disability as specified under Section 80U of the Act or suffers from any of the diseases as specified under Section 80DDB of the Act, and the policy was issued on or after April 1, 2013, then you can avail an Income Tax deduction upto 15% of the death sum assured1.  

Consider the following illustrations of term insurance premiums and the deduction that you can claim in each case (assuming Customer is opting for old tax regime) –

Premium amount

Sum assured

Deduction available

Reason

Rs. 114,093

Rs.50 lakhs

Rs. 1,14,093

Premium is less than 10% of the sum assured and within the deduction limit of Rs.1.5 lakhs, so deduction is allowed on Rs. 1,14,093 (Assuming the term policy has been issued after 1st April 2012).

Rs.2,07,489

Rs.1.5 crore

Rs.1.5 lakhs

Though the premium is less than 10% of the sum assured, it exceeds the deduction limit of Rs.1.5 lakhs. Thus, the deduction is allowed up to the maximum limit of Rs. 1.5 lakhs only

In cases where the premium is within the deduction limit of Rs.1.5 lakhs and is more than 10% of the sum assured, the deduction is allowed only on the amount which is 10% of the sum assured for term policies issued on or after 1st April 2012 and 20% of the sum assured for term policies issued before 1st April 20121.

Note: The above figures are for illustration purposes only, calculated for different premium payment terms for a male aged 35 years, non-smoker, earning between 15-20lakhs/year. These figures will vary from person to person. Please use the relevant calculator to calculate the premium for your chosen plan type.

 

 

2. Tax benefit under Section 10(10D):

 

Section 10(10D) is applicable for policy benefits, including maturity or death benefits, if any, received under the insurance plan. The death benefit is exempt in the hands of the recipient irrespective of satisfaction of Section 10(10D) conditions. However, in case of maturity, gain from a policy will be taxable in the hands of the recipient if the policy does not satisfy Section 10(10D) conditions.

In the earlier example, Section 10(10D) exemption will be allowed in the first two instances because the premium is within 10% of the sum assured. However, if the premium exceeds 10% of the sum assured, the maturity benefit paid under this instance will be taxed in your hands as income at your slab rates.

Furthermore, under Section 10(10D) of the Act, death benefits are completely tax-free in the hands of the nominee5 for pure term policies.

 

3. Tax Benefit Under Section 80D:

 

Term insurance plans offer different riders with the policy. These riders give additional coverage and come at an additional premium. Premiums paid for some riders, like the Critical Illness Rider, can be deducted from your taxable income. A critical illness rider pays out a lump sum if you are diagnosed with any of the critical illnesses listed under the plan. The premium paid for the rider is allowed as a deduction under Section 80D. The deduction limit is Rs. 25,000 if you are below 60 years old and Rs. 50,000 if you are a senior citizen.

 

Eligibility Criteria for Claiming Term Insurance Tax Benefits:

 

To claim term insurance tax benefits under Sections 80C and 80D, some eligibility parameters should be met. These are as follows –

  1. The deduction is allowed in the financial year when the premium is paid1 and only under old tax regime.
  2. You can claim a deduction under Section 80C for premiums paid for yourself, your spouse and dependent children1.
  3. For deduction under Section 80D, you can pay premiums for yourself, your spouse and dependent children1 for health rider.
  4. NRIs can also claim a deduction under term insurance comes under 80C or 80D for the insurance premiums paid1.
  5. After buying the plan, you should hold on to the policy for a minimum of 2 years. Surrendering or terminating the policy before 2 years will reverse the benefit availed under Section 80C of the Income Tax Act, 19611.
  6. To claim benefit under Section 10(10D) on maturity, the premium payable should not exceed 10% of the death sum assured for policies issued after 31 March 2012.

 

Conclusion:

 

A term insurance plan, thus, is a multifaceted plan that not only provides insurance coverage for financial security but also helps save tax. The death benefit paid under the plan is tax-free, subject to provisions of the Act. Maturity benefit, i.e., return of premiums upon maturity, if opted under the plan, is tax-free under Section 10(10D), subject to satisfaction with the conditions mentioned therein. So, understand the tax benefits of term insurance plans and use these benefits to your advantage when filing your returns.

Reference

  1. https://incometaxindia.gov.in/tutorials/20.%20tax%20benefits%20due%20to%20health%20insurance.pdf
  2. https://cleartax.in/s/life-insurance-taxability#:~:text=The%20insurance%20company%20is%20liable%20to%20deduct%20tax%20at%205,65%2C000%20amounting%20to%20Rs%203%2C250
  3. https://economictimes.indiatimes.com/wealth/personal-finance-news/section-80c-deduction-in-budget-2024-will-the-government-increase-section-80c-limit-under-the-old-income-tax-regime-in-budget/articleshow/111250865.cms?from=mdr
  4. https://economictimes.indiatimes.com/wealth/tax/now-life-insurance-maturity-money-will-not-be-fully-tax-exempt-cbdt-issues-new-tax-rules/articleshow/102797642.cms?from=mdr 
  5. https://www.livemint.com/money/personal-finance/how-life-insurance-policies-are-taxed-11665145664260.html

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Disclaimers:
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~Tax benefits as per prevailing Income tax laws shall apply. Please check with your tax consultant for eligibility.

The above information is for general understanding and is meant to educate the general public at large. The reader will have to verify the facts, law and content with the prevailing tax statutes and seek appropriate professional advice before acting on the basis of the above information. 

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Disclaimer

*Tax benefits as per prevailing Section 10(10D) and Section 80C of the Income Tax Act shall apply. You are requested to consult your tax consultant and obtain independent advice for eligibility before claiming any benefit under the policy.

~Individual Death Claim Settlement Ratio for FY 2023-2024

1Premium Holiday has to be selected at inception to avail this benefit and also depends on other policy terms & conditions


Bajaj Allianz Life Insurance Co. Ltd. | IRDAI Reg. No. 116

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I hereby authorize Bajaj Allianz Life Insurance Co. Ltd. to call me on the contact number made available by me on the website with a specific request to call back. I further declare that, irrespective of my contact number being registered on National Customer Preference Register (NCPR) or on National Do Not Call Registry (NDNC), any call made, SMS or WhatsApp sent in response to my request shall not be construed as an Unsolicited Commercial Communication even though the content of the call may be for the purposes of explaining various insurance products and services or solicitation and procurement of insurance business

 

Please refer to BALIC Privacy Policy

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Disclaimer

%%Above illustration is for Bajaj Allianz Life eTouch- A Non Linked, Non-Participating, Individual Life Insurance Term Plan (UIN: 116N172V03) considering Male aged 25 years | Non-Smoker | Policy Term (PT)– 30 years | Premium Payment Term (PPT) – 30 years | Sum Assured opted is Rs. 1,00,00,000 | Online Channel | Standard Life | 1st Year Premium is Rs. 6,238. 2nd Year onwards premium is Rs. 6,659. Total Premium Paid is Rs. 1,99,349 | Medical Rates | Yearly Premium Payment Mode | Death benefit opted is lumpsum payout and monthly installments (Lumpsum Payout Percentage : 45, Income Payout Percentage : 55) | Premium shown above is exclusive of Goods & Service Tax/any other applicable tax levied, subject to changes in tax laws, and any extra premium and is for illustrative purpose only. This is inclusive of all the discounts mentioned above.

##Tax benefits as per prevailing Section 10(10D) and Section 80C of the Income Tax Act shall apply. You are requested to consult your tax consultant and obtain independent advice for eligibility before claiming any benefit under the policy.Above Tax benefit is calculated considering deduction of Rs. 150,000 and applicable tax rate of 31.20%.

@Term Insurance plan bought online directly from Bajaj Allianz Life Insurance has no commissions involved.

^^The Return of Premium amount is total of all the premiums received, exclusive of extra premium, rider premium and GST & /any other applicable tax levied, subject to changes in tax laws
Bajaj Allianz Life Insurance Co. Ltd. | IRDAI Reg. No. 116

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Disclaimer

Bajaj Allianz Life eTouch- A Non Linked, Non-Participating, Individual Life Insurance Term Plan (UIN: 116N172V04)

*Tax benefits as per prevailing Section 10(10D) and Section 80C of the Income Tax Act shall apply. You are requested to consult your tax consultant and obtain independent advice for eligibility before claiming any benefit under the policy.Above Tax benefit is calculated considering deduction of Rs. 150,000 and applicable tax rate of 31.20%.

~Individual Death Claim Settlement Ratio for FY 2023-2024

1Premium Holiday has to be selected at inception to avail this benefit and also depends on other policy terms & conditions


Bajaj Allianz Life Insurance Co. Ltd. | IRDAI Reg. No. 116


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Life Cover + 16% Discount** +Save Tax*!
Under Section 80C & 10(10D) of Income Tax Act, 1961*
Get Life Cover + Save tax up to Rs 46,800*
₹2 Cr Term Plan
@ 21/Day²
Free Health Management Services
upto ₹ 31,000 p.a.^^

Disclaimer:

2Above illustration is for Bajaj Allianz Life eTouch II- A Non-Linked, Non-Participating, Individual Life Insurance Term Plan (UIN: 116N198V01) considering Male aged 23 years | Non-Smoker Preferred | Annual Income =>Rs. 15,00,000 per annum | Indian Resident | Policy Term (PT)– 30 years | Premium Payment Term (PPT) – 30 years | Sum Assured opted is Rs. 2,00,00,000 | Online Channel | Standard Life | 1st Year Premium is Rs. 7,159. 2nd Year onwards premium is Rs. 7,760. Total Premium is Rs. 2,32,199 | Medical Rates | Yearly Premium Payment Mode | Death benefit opted is lumpsum payout and monthly instalments (Lumpsum Payout Percentage : 40, Income Payout Percentage : 60). Income payout instalment opted for 40 years | Premium shown above is inclusive of Online Discount only, no other discounts have been considered and exclusive of Goods & Service Tax/ any other applicable tax levied, subject to changes in tax laws, and any extra premium and is for illustrative purpose only. For more details on risk factors, terms and conditions please read sales brochure & policy document (available on www.bajajallianzlife.com) carefully before concluding a sale.

**5% Discount applicable for customer's first individual life insurance policy, applicable only on first year’s premium. 5% Discount for salaried customers, applicable only on first year’s premium. 6% Discount on online purchase is available for regular premium payment and limited premium payment frequency, applicable only on first year’s premium.

*Tax benefits as per prevailing Section 10(10D) and Section 80C of the Income Tax Act shall apply. You are requested to consult your tax consultant and obtain independent advice for eligibility before claiming any benefit under the policy. Above Tax benefit is calculated considering deduction of Rs. 150,000 and applicable tax rate of 31.20%.

^^Get Free Health Management Services upto Rs. 31,000 per year

Health Management Services Frequency Cost (₹)
Doctor Insta-Consultations 3 consultations per month = 36 consultations per year Average cost per session = ₹500
Total cost per year = ₹500 * 36 = ₹18,000
Health Coach
(Diet & nutrition consultations)
1 consultation per month =
12 consultations per year
Average cost per session = ₹500
Total cost per year = ₹500 * 12 = ₹6,000
Emotional Wellness
(Psychologists consultations)
1 consultation per month =
12 consultations per year
Average cost per session = ₹500
Total cost per year = ₹500 * 12 = ₹6,000
Network discounts: Throughout the year Assumption – Total expense on these services throughout the year
Medicines (M) = ₹5,000
Lab-test booking (L) = ₹5,000
Total discounts that can be availed:
M - 10% = ₹500
L - 10% = ₹500
Total per year as per assumption ₹31,000

Note: The above mentioned costs are based on estimated average market price for respective services. T&C apply.

Doctor Insta-Consultations and Health Coach Services are unlimited and the above numbers are assumed only for the purpose of calculation of the yearly benefit.

Bajaj Allianz Life Insurance Co. Ltd. | IRDAI Reg. No. 116

 

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