Term Insurance Tax Benefits - Section 80C, 80D & 10D

 Introduction

Filing for taxes and still figuring out how to save some money. Medical bills and expenses not helping in tax exemption? Ever thought about getting a term insurance policy? Term insurance is a financial instrument that offers tax benefits to its policyholders. Term insurance tax benefits are one of the prime reasons people purchase term insurance policy plans.

There are a lot of options available under term insurance plans to choose from. One can always customise their term insurance plans to achieve maximum benefits.

An individual can avail of term insurance benefits under the Income Tax Act of 1961 -

 Who is Eligible to Claim Term Insurance Premium Tax Benefit?

Individuals and Hindu Undivided Family organisations (HUFs) can claim term insurance tax benefits on premiums. It can be done by asking for a deduction on the paid premium of the insurance policy.

Term Insurance Tax Benefits

Term Insurance Under 80C

One of the most popular tools for saving tax used by individuals is section 80C of the IT Act. The maximum deduction offered under this section is Rs. 1.5 Lakh on the investments and instruments listed in the IT Act. These instruments like PPF, ULIP, EPF ELSS are included along with repayments like home loans, children’s coaching fees, insurance premiums, etc.

The conditions to get a term insurance benefit under 80C are:

• The annual amount paid for the premium should not go beyond 10% of the sum assured. In case the premium amount is above 10%, then the deductions will proceed proportionately.

• For all the policies that were issued before 31st March 2012, the deduction applies only if the premium is not above 20% of the sum assured.

• The Section 80C tax benefits for term plan will not apply to the policies which were voluntarily terminated or surrendered before the completion of two years from the date of issuance.

Term Insurance Under 80D

Section 80D was specially designed and reserved for the policies related to health insurance. It provided deductions in the health insurance policy value taken for the individual self, spouse, children, or parents. For each of the conditions, the deduction limits are different.

The term insurance benefit under 80D includes Critical Illness, Surgical Care, Hospital Care Rider, etc.

Section 80D tax benefits for term plan have certain conditions like -

• The deduction amount does not exceed Rs. 25,000

• In case the policyholders are senior citizens, additional benefits of Rs. 25,000 can also be availed. For senior citizens, the tax-benefit value can increase as much as Rs. 50,000.

GST Exemption on Term Insurance

GST charges are dependent upon the term plan. Generally, the GST rate is 18% for a basic insurance plan. In the IT Act, 1961 the Section 80C mentions about the deductions and term plan tax benefits available on the total annual insurance premium amount paid. Hence when the GST is charged on the term insurance premium it is covered under Section 80C.

For example - Suppose the annual premium amount sums up to Rs. 15,000, then the GST charged on this would be Rs.2,700. Therefore, according to Section 80C of the IT Act of 1961, the total tax deductions amount that can be claimed will be Rs. 17,700.

Tax Liability for the Beneficiary

The policyholder might have to pay taxes in certain situations. If the beneficiary opts not to have the tax deductions paid out directly, the tax amount is then kept with the insurance company and accrues interest on the same. The total portion of the interest then becomes a tax-attracter under the eyes of the IT department.

Conclusion

Term Insurances are one of the most popular and simplest of future-securing investments. There is a huge list of tax benefits for term insurance which not only ensures the financial security of your family in times of emergencies but also helps in saving your money. It is a very affordable and reliable financial shield for your family.