Tax Benefits of Term Insurance

Investing in a term insurance policy is not just about securing your loved ones financially; it also offers significant term plan tax benefits. Understanding these benefits can help you make informed decisions about your financial future and optimise your savings. With the right knowledge, you can harness these tax advantages to enhance your family's security while reducing your taxable income.

Term Insurance Tax Benefits Under Sections 80C

One of the most significant tax benefits of term insurance is found under Section 80C of the Income Tax Act.

Individuals can claim deductions of up to ₹1.5 lakh for the premiums paid toward their term insurance policies. This means that if you pay ₹30,000 in premiums annually, you can reduce your taxable income by that same amount. However, it's essential to ensure that your annual premium does not exceed 10% of the sum assured for policies issued after April 1, 2012, and 20% for those issued before that date. For instance, if you have a sum assured of ₹10 lakhs, your annual premium should be capped at ₹1 lakh to enjoy the full tax benefits of term insurance. By using this section effectively, you can not only safeguard your family’s future but also save on taxes.

Term Insurance Tax Benefits Under Sections 80D

While Section 80C is well-known, Section 80D offers another layer of tax benefits that many individuals might overlook. This section allows for tax deductions on premiums paid for health insurance policies. Interestingly, if you opt for riders like Critical Illness cover alongside your term insurance, you can enjoy term insurance tax benefit 80D as well. For example, if you spend ₹25,000 on health insurance for yourself and your family and an additional ₹15,000 on a Critical Illness rider, you can claim a total deduction of ₹40,000 under Section 80D. This allows you to strengthen your financial safety net while maximising your tax savings.

Term Insurance Tax Benefits Under Sections 10(10D)

The tax benefits of term insurance extend to Section 10(10D) as well. This section stipulates that the death benefits received by the nominee are tax-exempt. So, if your family receives ₹50 lakh upon your unfortunate demise, they won't have to pay any taxes on that amount. This exemption is subject to certain conditions. To qualify, the premiums paid during the policy term should not exceed 20% of the sum assured for policies issued after April 1, 2012. This tax benefit ensures that your family receives the entire amount intended for them without any deductions and provides financial relief when it’s needed the most.

How to claim Term Insurance Tax Benefits

Now that you understand the various tax benefits available, let’s discuss how to claim them.

If you are a salaried individual, claiming tax benefits of term insurance is relatively straightforward. You will need to submit Form 12BB to your employer, which details your investments and expenses eligible for tax deductions. Make sure to keep the premium payment receipts handy, as the tax department might require them for verification.

On the other hand, self-employed individuals need to include their term insurance premiums while filing their Income Tax Returns (ITR). It’s essential to remember that only the actual premium paid can be claimed as a deduction, not the maximum limit set by the Income Tax Act.

By leveraging the tax benefits of term insurance effectively, you can enhance your financial security while ensuring that your family is well-protected. Term insurance not only provides peace of mind but also serves as a tool for efficient tax planning. Consider exploring offerings from trusted providers like SBI Life Insurance to secure your family’s future while enjoying tax savings.

Tax Benefits on Term Insurance Riders

Riders can significantly enhance your term insurance policy, but they can also provide additional tax benefits. For instance, if you include a Critical Illness rider with your term plan, you can claim tax deductions under Section 80D, as discussed earlier.

Riders such as Return of Premium can also impact your premium payments, leading to greater tax benefits under Section 80C. Suppose you pay an extra ₹5,000 annually for a rider that guarantees the return of your premium if you survive the policy term. This additional amount could help you claim higher deductions, making it a beneficial option for many individuals.

Moreover, certain riders provide health coverage that adds another layer of financial protection, ultimately helping you save more on taxes.

Eligibility criteria to claim tax benefit

To claim the tax benefits of term insurance, there are a few eligibility criteria you must meet.

You should be the policyholder and pay the premium. Tax deductions can only be claimed by individuals who are Indian residents.

Additionally, the premiums must be paid within the financial year for which you wish to claim the deductions. The age of the insured person may also affect the premium limits for claiming deductions under various sections.

If you are unsure of your eligibility, consulting a financial advisor or a tax consultant can help clarify your queries and guide you through the claiming process.

FAQs

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

Anyone who is an Indian resident and pays premiums on their term insurance policy can claim tax benefits. The benefits are available for both salaried and self-employed individuals, provided they meet the necessary criteria.

What are term insurance tax benefits?

Term insurance tax benefits refer to the deductions available under various sections of the Income Tax Act, which allow policyholders to reduce their taxable income by the amount of premium paid.

What is the tax deduction limit for ordinary citizens under 80D?

Under Section 80D, ordinary citizens can claim a deduction of up to ₹25,000 for health insurance premiums paid for themselves and their families. If the insured is above 60 years, the limit increases to ₹50,000.

How can I maximise term insurance tax benefits?

You can maximise term insurance tax benefits by purchasing a term plan with higher sum assured amounts and opting for riders that provide health coverage. This allows you to claim deductions under both 80C and 80D.

Is the GST paid on term insurance premiums deductible under Section 80C?

Yes, if the GST is not included in the premium amount, it can also be claimed as a deduction under Section 80C, provided the total premium paid does not exceed the limits set by the Income Tax Act.

How do I calculate my term insurance tax deductions?

To calculate your term insurance tax deductions, sum up the premiums paid during the financial year. Ensure you meet the eligibility criteria under Sections 80C and 80D, and include any applicable riders for additional deductions.