Term insurance is a simple way to protect yourself against any unfortunate event that could happen during the policy term. 

The tax benefit that comes with a term plan is among its most important benefits. 

SectionTerm insurance tax benefit
Sec 10DSection 10, subsection 10D, of the Act says that you don’t have to pay tax on the money you get from a term insurance policy.
Sec 80CSection 80C, lets policyholders take up to Rs. 1.5 lakh off the taxable cost of their insurance policies.
Sec 80DThis provision covers deductions for critical illness insurance premiums up to Rs. 25,000. Senior citizens are eligible for benefits up to Rs. 50,000.

Who is eligible to reclaim the tax break on term insurance premiums?

Tax benefits on term insurance premiums are available to individuals and Hindu Undivided Family organisations (HUFs). 

You can ask the insurance company to take money off the premium you’ve already paid.

Tax advantages for term insurance:

Under 80C term insurance

Section 80C of the Income Tax Act is one of the most popular ways for individuals to save on their taxes. The maximum deduction provided by this provision on the investments and instruments listed in the Income Tax Act is Rs. 1.5 lakh. 

Along with repayments for home loans, children’s coaching costs, insurance premiums, etc., instruments like PPF, ULIP, and ELSS are included. One can verify the rates with the help of an online term insurance calculator and find affordable rates with little assistance.

The requirements to get a term insurance benefit under Sec 80C are as follows:

  • The annual premium payment must be at most 10% of the amount assured. 
  • If the premium amount exceeds 10%, the deductions will be made proportionately.
  • The deduction only applies to insurance policies bought before March 31, 2012, if the premium cost is less than 20% of the amount insured.
  • Section 80C tax breaks for term plans do not apply to policies cancelled or given up before two years from the date they were issued.
     

Term protection under Sec 80D:

Section 80D covers the policies related to health insurance. It reduces the tax liability on the amount of health insurance premiums paid for a person’s self, spouse, kids, or parents. The deduction thresholds vary depending on the circumstances.

Section 80D term insurance covers critical illness, surgical care, hospital care riders, and other term insurance tax benefits.

Specific criteria apply to Section 80D tax benefits for term plans:

  • The deduction cannot be for more than Rs. 25,000.
  • Seniors who are policyholders may also be eligible for an additional Rs. 25,000 in benefits. The tax-benefit value can rise by as much as Rs. 50,000 for seniors.

Tax advantages for term insurance add-ons:

To offer additional coverage, insurance firms provide a variety of term insurance riders. However, their advantages go beyond enhancing a term insurance policy’s essential component.

Term plan riders can help you get more tax breaks from your term life insurance in the following ways:

  • When you add a critical illness rider to your term plan, you qualify for Section 80D tax deductions.
  • When added to a term plan at the time of purchase, riders like the return of premium raise the premium, allowing you to maximise your Section 80C tax savings. Use an online term insurance calculator to see how the premium changes when riders are added.

Exemption from GST for term insurance:

GST fees vary based on the term plan. The standard GST rate for a basic insurance plan is 18%. The deductions and term insurance tax benefits available on the total annual insurance premium amount paid are discussed in Section 80C of the IT Act of 1961. 

Therefore, Section 80C applies when the GST is charged on the term insurance premium. As an illustration, if the annual premium totals Rs. 15,000, the GST imposed would be Rs. 2,700. Therefore, the maximum amount of tax deductions that may be claimed under Section 80C of the IT Act of 1961 is Rs. 17,700.

Beneficiary’s tax liability:

In some circumstances, the policyholder can be required to pay taxes. The tax amount is then maintained with the insurance company, and interest is accrued if the beneficiary chooses not to have the tax deductions paid out directly. Under the Income Tax Department’s scrutiny, the interest amount becomes a tax attractor.

Conclusion:

Term insurance is one of the most popular and straightforward instruments for ensuring the future. There is a long list of tax advantages for term insurance, which not only assures your family’s financial security in emergencies but also aids in money management. Just keep in mind that the Indian income tax system levies tax based on the tax regime chosen while filing. The benefits and savings of the taxpayer are then determined on the basis of the chosen regime.

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.

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By SARAH