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Conditions for term insurance tax deductions and exemptions

Conditions for term insurance tax deductions and exemptions

Conditions for term insurance tax deductions and exemptions


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March 11, 2021

By : Bajaj Allianz Life

Perhaps you are already aware of the term insurance meaning and that it provides your family with a financial safety net in the event of your untimely demise. However, did you know that a term insurance plan could also help you save tax? That is right. Here is some more information regarding term insurance tax exemptions.

 

Term insurance tax benefits

The provisions of the Income Tax Act, 1961 (the Act) allow a term insurance policy to offer tax saving benefits under three different sections - section 80C, section 80D, and section 10(10D). Here is a more in depth look at these three sections -

1. Section 80C of the Income Tax Act, 1961

It allows you to claim the premiums that you pay towards a term plan in a financial year as deductions from your total income for that year up to a limit of Rs. 1,50,000. This allows you to reduce your overall tax liability.

2. Section 80D of the Income Tax Act, 1961

It allows you to claim the premiums that you pay towards a health insurance policy in a financial year as deductions from your total income for that year. Although this section deals with health insurance premiums, you can still make use of it to reduce your overall tax liability if you have opted for any health riders along with your base online term plan, such as a critical illness rider.

3. Section 10(10D) of the Income Tax Act, 1961

According to the provisions of section 10(10D) of the Income Tax Act, 1961, the death benefit that your nominees receive is subject to provisions of the Income Tax Act,1961.

 

Who can receive term insurance tax benefits?

 

Individual taxpayers can claim the above-mentioned tax benefits under sections 80C, 80D, and 10 (10D). In fact, individuals can claim the premiums paid for a term insurance policy taken for themselves, their spouses, and their children.

That is not all. In addition to individuals, the Income Tax Act, 1961 also allows Hindu Undivided Families (HUFs) to avail the above-mentioned term insurance tax exemptions.

 

Conditions for term insurance tax deductions

 

While claiming deductions under sections 80C and 80D of the Act by both individuals and Hindu Undivided Families (HUFs), certain conditions are to be satisfied for the same.

Let us take a quick look at them.

To claim deductions under section 80C, these conditions are in place –

1. In a financial year, the maximum amount of term insurance premiums that you can claim is restricted to Rs. 1.5 lakh. In case of multiple term insurance policies, the aggregate total premium that you can claim is also limited to Rs. 1.5 lakh.

2. For term insurance policies purchased on or before March 31, 2012, the total amount of premiums that you can claim as deductions is restricted to 20% of the capital sum assured.

3. On the other hand, for term insurance policies purchased on or after April 01, 2012, the total amount of premiums that you can claim

as deductions is restricted to 10% of the capital sum assured.

Similarly, to claim deductions under section 80D, these are the following conditions that are in place –

1. To make use of section 80D, you are required to have opted for a health-related rider along with your online term plan.

2. You can only claim the premiums that you pay towards the health-related rider in a financial year under section 80D.

3. An additional, deduction for health insurance or riders taken for parents is available up to Rs 25,000, if they are below 60 years of age.

4. If the parents are aged above 60, the deduction amount is restricted to Rs 50,000.

 

Conditions for term insurance tax exemptions

 

Similar to the other two sections, in order to claim tax exemptions under section 10(10D) of the Act, there is a condition that needs to be satisfied.

The death benefit that a term insurance plan pays to your beneficiaries is exempted from taxation only in the case where the sum assured under the policy is at least ten times that of the premiums that you pay in a financial year.

 

Conclusion

 

As you can see, the conditions for term insurance tax deductions and exemptions are fairly simple and easy to understand. With so many benefits and cost-effective premiums, term insurance plans are one of the preferred investment options for you and your loved ones. You can even purchase an online term plan now, from the comfort of your home.

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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.