Various deductions and exemptions are available in different sections of the Income Tax Act to lower taxes. Taxpayers can invest in several financial instruments to qualify for these deductions and exemptions. One such financial instrument is term insurance. Term insurance policyholders can avail themselves of several tax advantages under Sections 80C, 80D, and 10(10D) of the Income Tax Act, 1961.

Select the best life insurance policy to secure your loved ones financially and maximise your tax benefits.

Term Insurance: Tax Benefits Under Section 80C

This section permits a maximum deduction of Rs 1.5 lakh for the total investments and instruments listed. It includes different instruments like life insurance premiums, PPF, EPF, ELSS, NPS, SCSS, Tax-saving Fixed Deposits (FDs) in Banks and Post Offices, home loan payments, and children’s school fees.

Under this provision, you are eligible for tax benefits up to Rs 1.5 lakh on your life insurance premiums. However, specific conditions must be fulfilled to qualify for tax advantages on term insurance through Section 80C.

The yearly premiums must not exceed 10% of the guaranteed sum. If they exceed 10%, deductions will be taken accordingly.
For policies issued before March 31, 2012, taxpayers can claim term insurance deductions under Section 80C, but only if the annual premium paid does not exceed 20% of the sum assured.
As per Section 80C(5), if an insurance policy is canceled or ended within two years of inception, the policyholder will not receive tax or any advantage on premium payments as specified in Section 80C.

Term Insurance: Tax Benefits Under Section 10(10D)

As per Section 10(10D) of the Income Tax Act, any guaranteed amount of money received upon the policyholder’s death is completely exempt from taxes. Additionally, the sum assured upon maturity is also tax-free. However, this exemption applies if certain conditions are met:

Tax benefit under Section 10(10D) for term plans applies when premiums are less than 10% of the sum assured.
If the payout is more than Rs. 1,00,000 and the insurer has the policyholder’s PAN, a 1% TDS (Tax Deducted at Source) is deducted.

Term Insurance: Tax Benefits Under Section 80D

Usually, the Section is designated solely for health insurance plans. However, term insurance plan riders are eligible for tax benefits as per Section 80D. Insurance policyholders who add Critical Illness, Surgical Care, and similar riders in their term insurance policy can also receive tax deductions. The criteria for eligibility for 80D term insurance benefits are outlined as follows:

Deductions can be claimed up to Rs. 25,000 under Section 80D.
If you have bought insurance for your parents, who are senior citizens, the deduction limit goes up to ₹50,000.

Wrapping up

Simplify your decision-making using a term plan calculator today. This helpful online tool estimates the appropriate coverage and premiums, making selecting your insurance plan straightforward and efficient. Buy a life plan today, secure your loved ones financially, and enjoy tax advantages.