Term plan or Term Insurance Plan is gaining popularity amongst the mass due to their importance and benefits for loved ones and family members. It is a pure form or type of life insurance wherein the coverage is for a specified ‘term’ or ‘period’. Unfortunately, if the insured or policyholder dies during the tenure of the term plan, then the nominee or dependents are entitled to get a death benefit.
Not only this, term insurance plans come with several term plan tax benefits. Irrespective of the term plan one chooses, the insurer gets a tax exemption benefit on paying the premium for the same. However, at times people are unaware of this fact and end up gaining no term life insurance tax benefits. Thus, we hereby, present a series of tax benefits that can be understood in depth below:
Term Insurance Tax Benefits
Here are the term insurance tax benefits:
- Section 80C of the Income Tax Act, 1961
A policyholder can claim a tax deduction upto ₹1,50,000/- for the due premium towards a term plan under section 80C of the Income Tax Act, 1961. One should be informed that the maximum amount of tax refund available includes tax benefits gained from investments in tax-saving term deposits, National Pension and other tax-saving methods. The term plan deduction in income tax benefit can be availed by the assessee or insurer, his/her spouse and dependent children.
The following are some essential clauses concerning the term insurance tax deductions under Section 80C of the Income Tax Act:
- If a term insurance policy or a term life insurance plan is issued prior to or on 31st March 2012, then tax deduction can be applied if and only if the amount of total premium is 20% of the sum insured.
- If the policyholder is disabled or is suffering from any illness, then he/she is entitled to gain a tax benefit if he/she has not paid premiums for an amount more than or equal to 15% of the sum insured.
- If the term insurance policy or term plan is issued prior to or on 1st April 2012, then tax deduction can be applied if and only if the amount of total premium is 10% of the sum insured.
- In case a Hindu Undivided Family member or HUF member can avail of the tax benefits mentioned above.
These tax benefits can also be availed on investments other than life insurance as well.
- Section 10 (10D) of the Income Tax Act, 1961
Section 10(10D) of the Income Tax Act, 1961, offers a distinctive advantage for tax exemptions. A term insurance plan or money-back policy allows nominees appointed by policyholders to receive maturity benefits and death benefits without paying taxes. This includes the bonus as well. This amount is exempted from tax. But, these clauses or conditions would not be applicable if:
- The amount or bonus obtained as a death benefit should not come under Keyman Insurance Policy.
- The amount or bonus is received under 80DDA (3) or 80DD (3)
- If the policy is issued after or on 1st April 2012, then the tax is exempted if and only if the amount of premium is not more than 10% of the assured sum.
- The amount is not exempted from tax if it is not received under death benefit for a policy that has been issued after or on 1st April 2003, but it is issued before or on 31st March 2012.
- Section 80D of the Income Tax Act, 1961
The term plan deduction in income tax benefits under Section 80D of the Income Tax Act, 1961, is primarily available for paying health insurance premiums. Nevertheless, tax exemptions are available for a term plan if health-related policies, including primary healthcare cover, long-term disability policy, and similar riders, are taken. The benefits can be availed by the assessee, his/her spouse, dependent children and parents (irrespective of being dependent or not).
The following clauses are applicable for the deductions:
- The amount should be below ₹25000/-
- An additional amount of ₹25000/- will be availed if the policy is in the name of the parents.
- If life insurance is taken, then a tax benefit of ₹50000/- can be availed in the name of senior citizen parents.
The Term Insurance Tax Benefits can be easily availed on term plans offered by different providers. For example, if you choose to go with Tata AIA Life Insurance, then you can avail several benefits across the plans offered. However, before finalising, one should research well and consider all the factors. One should have appropriate knowledge of the tax provisions in order to file tax returns. It is essential to be abreast with the latest amendments year on year. So, go for an appropriate term plan and enjoy the term insurance tax benefits.