As the end of the fiscal year approaches, there is much talk about tax planning. Most people will make intentional investments to lower taxes and grow their savings. They use the tax planning rules outlined in the Income Tax Act of 1961 to control their tax obligations.
Many individuals choose term insurance and take tax advantages offered by Sections 80C and 80D. Let’s uncover the path!
Term Insurance
A term plan offers life insurance coverage to the policyholder. It is strictly a protective insurance plan without any investment advantages. These affordable plans provide people the chance to get comprehensive life insurance coverage at affordable rates. If the policyholder dies during the coverage period, the nominees will receive the death benefits. In simple terms, a term plan provides the policyholder’s family with financial stability in times of necessity. The receiver can use the money to replace lost income, pay off debts, and more.
Different Types of Tax Benefits
Term insurance is an effective long-term investment that provides significant tax advantages.
- Tax benefits under sections 80c and 10(10D)
Under Section 80C of the Income Tax Act, 1961, you are eligible for tax benefits of up to INR 1,50,000 every year on the premiums you pay towards your term insurance plans. However, here are the conditions for claiming tax benefits under Section 80C.
- The annual premium paid should not exceed 10% of the actual assured amount. If not, the deduction is calculated proportionately.
- Policyholders can claim tax deductions for policies issued before March 31, 2012, but only if the annual premium paid does not exceed 20% of the sum assured.Â
Moreover, the death benefit your beneficiaries receive from the term plan is tax-free under Section 10(10D) of the Income Tax Act.
- Tax benefits under the section 80D
The Income Tax Act deals with health insurance policies in Section 80D. However, you can still avail yourself of Section 80D benefits even with your term insurance plan! Nowadays, you can include riders, such as critical illness coverage, in your term insurance plan and claim deductions of up to Rs. 25000 on premiums paid.
Let’s say you also bought term insurance riders for your parents over 60 years old. Then, you can claim an additional deduction of INR 50,000 under Section 80D. This means you are eligible for a maximum annual Section 80D benefit claim of INR 75,000.
Conclusion
Term insurance is the most affordable life insurance plan. It offers pure life coverage at relatively low premiums compared to other types of life insurance. This affordability allows you to secure substantial life cover without straining your budget. Choose the right term plan today and secure your loved one’s financial stability.
