Achieving financial stability is a common goal for everyone, as it brings peace and security. However, many people find it challenging to save effectively. The good news is that a term insurance plan can enhance your financial security and savings.
Term insurance provides higher life coverage at a minimal premium. It offers financial support and various tax benefits that can impact your financial savings. This article will explain how term insurance can boost your tax savings.
How Term Insurance Plans Boost Tax Savings?
You may wonder whether term insurance tax benefits come under Section 80C or Section 80D of the Income Tax Act 1961. The answer is term insurance offers tax benefits under both these sections and Section 10 (10D) of the Income-tax Act, 1961. Let’s explore these three sections under which you can claim tax benefits and boost your tax savings:
- Term Life Insurance Tax Benefits Under Section 80C
Under Section 80C, you can get a tax deduction of up to Rs. 1.5 lakh for premiums paid on life insurance policies, including your term insurance plan. Eligible investments and expenses under this section also include EPF, PPF, ELSS, SCSS, VPS, Tuition fees for children’s education, and more.
However, the following are conditions to avail tax benefits under this section:
- The annual premium paid should not exceed 10% of the assured amount. If it is more than 10%, the deduction is calculated proportionately.
- The premium tax benefit can be claimed if the term insurance was issued before 31st March 2012. However, the annual premium should not exceed 20% of the sum assured. If it exceeds this limit, the deduction will be calculated proportionately.
- You can claim term insurance tax benefits only if the policy is in force. If you cannot pay your premium completely and your policy gets terminated, you lose the life cover, and your family loses their financial security.
- Term Life Insurance Tax Benefits Under Section 80D
Many insurance companies offer riders that can be added to their term insurance plans. When you pay premiums for riders such as Critical Illness, Surgical Care, and other similar covers, you are eligible for a deduction under section 80D of the Income Tax Act. The following are certain conditions to avail of this tax benefit:
- Under this section, the maximum tax deduction you can claim is Rs. 25,000 for term plans covering you (anyone under 60 years of age).
- The maximum tax deduction for people over 60, such as dependent parents and in-laws, is increased to Rs. 50,000.
- Term Life Insurance Tax Benefits Under Section 10 (10D)
Section 10(10D) of the Income Tax Act states that the money the designated person receives upon the policyholder’s death and the sum assured upon maturity are tax-free if certain criteria are met.
- The total premium payable in the term policy shall not exceed 10% of the total sum assured. The policy must be issued on or after April 1, 2012.
- If the benefit payout is more than Rs. 1,00,000 and the policyholder’s PAN card is available, 1% TDS will be applicable.
Conclusion
Term plans offer several benefits, including tax savings. Premiums paid are allowed for a deduction of up to Rs 1.5 lakhs per annum. You can also opt for additional riders in your basic term plan to enhance the coverage and boost your tax savings.
