Conditions For Term Insurance Deductions And Exemptions

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Different sections of the Income Tax Act (ITA) offer deductions and exclusions that can help you pay less tax. Taxpayers have access to various eligible investments for these deductions and exemptions.  One such tax-reducing tool is term insurance. Besides the tax advantages of term insurance, policyholders get reliable life insurance protection for their families and can eventually lead stress-free lives. Plans for term insurance are helpful for people who want to reduce their tax liability. The Income Tax Act of 1961 says that anyone with a term insurance policy can get tax breaks.  Term insurance policies typically offer clients tax deductions under Section 80C of the Income Tax Act of 1961 and additional deductions of up to Rs 1.5 lakh per year. According to Section 10(10)D, policyholders can also get tax benefits on the maturity of their term insurance policy. 


Tax breaks and deductions under section 80C: 

Under this section, HUFs (Hindu Joint Families) and individuals can avail tax breaks.  

The tax benefits that policyholders can receive under Section 80C are as follows: 

  • The person himself 
  • The offspring of the person being assessed 

Benefit from section 80D: 

Even though Section 80D is primarily for health insurance plans, there can also be term insurance tax benefits one may avail. Deductions may be available if policyholders have chosen hospital care, surgical care, and critical illness riders.  

The following are the primary requirements to qualify for tax benefits under this section: 

  • If the policyholder’s parents are older than 60, they may be eligible for tax advantages of up to Rs. 50,000. 
  • If you bought the policy in your parent’s name, you could get tax breaks of up to Rs. 25,000. 
  • Tax benefits may be obtained if the sum is less than Rs. 25,000. 

Benefits from tax section 10 (10D): 

Here is a list of the essential requirements that must be met to get Section 10D tax benefits: 

  • If the compensation exceeds Rs. 1 lakh and the policyholder’s PAN is on file with the insurance firm, 1% TDS will be applied. 
  • To qualify for tax benefits, the sum assured must be 10% less than the total premium or ten times the full compensation. It is easy to estimate the figure by using an online term insurance calculator and finalising the premium amount as per your requirements. 
  • If the policy has been surrendered, if any bonuses were obtained due to the policyholder’s passing, or if the policy has matured and any sum assured has been paid out. 
  • Term insurance contracts give the policyholder, their family, or the person they choose as the beneficiary several taxes breaks.  
  • Certain tax benefits may be claimed if riders have also been added to the policy. 

Benefits from tax breaks for term insurance riders: 

Insurance providers offer a variety of term insurance riders for extra coverage. Their benefits go beyond just improving the core parts of a term insurance policy. 

Depending on the rider you choose for your term plan and other factors, you may get more tax benefits on your term insurance policy.  

There are several ways term plan riders might increase the tax advantages of your term life insurance: 

  • You qualify for tax deductions under Section 80D when you add the critical illness rider to your term plan. 
  • The premium increases when riders like the return of premium get applied to a term plan at the time of purchase, allowing you to maximise your Section 80C tax savings. Using an online term insurance calculator, you can see how the premium rises as riders get added. 

To sum up: 

People with term insurance plans want to ensure the future of their loved ones and set them up for success in life.  

Individuals can get a tax break on the premiums they pay for term insurance, and their beneficiaries or family members can get a tax break on the casualty payout under different parts of the income tax laws.  

The individual can gain from Section 80D of the income tax law, which provides tax benefits and claims for specific add-ons that offer coverage for medical expenses related to critical illnesses or physical disabilities. A term insurance plan can thus provide peace of mind to the policyholder and secure the individual’s family from financial hardships. 

Please note that taxpayers have a choice of opting for the new or old tax regime, based on which their tax benefits will be determined. Therefore, they should choose the regime wisely.

Insurance is the subject matter of solicitation. For more details on benefits, exclusions, limitations, terms, and conditions, please read the sales brochure/policy wording carefully before concluding a sale