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Home Insurance

Term Insurance Comes Under Which Sections Of The Income Tax Act

outwaynetwork by outwaynetwork
6th January 2023
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Table of Contents

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  • Term insurance: what is it?
  • Tax benefits for term insurance under different income tax sections:
    • Section 80C deductions
    • Section 80D tax deduction
  • Tax advantages on life insurance premiums:
  • Tax break for receiving benefit payments:
  • Section 80C term insurance tax benefit:
  • Section 80D term insurance tax benefit:
  • Section 10 (10)D term insurance tax exemption:

Under the Income Tax Act’s many sections, deductions and exemptions are available to reduce taxes. Investors in tax-exempt securities have access to a wide range of investment options. The cutoff date for purchasing tax-saving investments is March 31, 2023.

Term insurance is one of these tax-saving tools. Besides receiving the term insurance tax benefit, policyholders also receive a reliable life insurance policy for their family, which allows them to relax stress-free, eventually.

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Term insurance: what is it?

An insurance plan for a specific term is what you call a “term insurance plan.” You can get a sizable sum assured from it for a relatively minimal premium cost. The sum assured is paid to the policyholder’s nominee in the event of their demise during the policy period.

One can use an online term insurance calculator to find the affordable premium as per the add-ons and benefits they’d require in the policy

Tax benefits for term insurance under different income tax sections:

Section 80C deductions

The tax deduction for premiums paid for a term insurance plan is up to Rs. 1.5 lakh under Section 80C. Death benefits granted to the nominee are also eligible for tax benefits under Section 10 (10D).

Section 80D tax deduction

A deduction of up to 25,000 is guaranteed by Section 80D for premiums paid for term plans that include critical illness insurance.

Tax advantages on life insurance premiums:

A life insurance policy’s sole and most significant function is to pay a death benefit to the nominees named by the policyholder. The death benefit is the amount guaranteed by a policy and given to the designated beneficiaries if anything tragic occurs while the policy is in effect.

Tax break for receiving benefit payments:

According to Section 10(10D) of the Income Tax Act, the amount paid as a death benefit from an insurance policy is entirely exempt from taxation. In other words, the insurance policy’s payouts are tax-free. According to Section 10, even the premium refund is tax-free.

The death benefit would be excluded from exemption in the case of the following:

  • Term insurance tax benefits obtained under Section 80 DD (3) or Section 80DDA’s Subsection (3)
  • Any payment made through a Keyman insurance policy

Section 80C term insurance tax benefit:

The most widely used method for reducing the tax burden is Section 80C of the Income Tax Act, which provides a benefit for term insurance.

A maximum deduction of Rs. 1.5 lakh is available under this section for all the specified investments and instruments. It comprises various investments like PPF, EPF, ULIP, and ELSS, as well as payments for things like home loan repayment, child’s tuition, life insurance premiums, etc.

The cost of a term life insurance premium paid under this section may also be deducted up to Rs. 1.5 lakhs (total of all investments and payments under this section). Section 80C’s eligibility requirements for the tax advantage for term insurance include the following:

  • The annual premiums must be at most 10% of the amount assured. Deductions will be applied if the premiums go beyond 10%.
  • Only if the annual premium is at most 20% of the sum guaranteed will the deduction be applicable for policies issued before March 31, 2012, in some instances.
  • The policyholder won’t be eligible for Section 80Cterm insurance tax benefits on premium payments if the policy is voluntarily relinquished or cancelled before the two-year mark, according to Section 80C (5).

Section 80D term insurance tax benefit:

Traditionally, only health insurance policies may be considered in this section. It provides a deduction for health insurance policies purchased for the self, the spouse, the kids, or the parents, with various deduction limits and restrictions.

  • Amounts up to Rs. 25,000 cannot be claimed as deductions under Section 80D.
  • You are eligible for an additional deduction of Rs. 25,000 if you have purchased an insurance policy for your parents.
  • If your parents are elderly, the deduction amount is increased to Rs. 50,000.

Section 10 (10)D term insurance tax exemption:

The sum assured, paid upon the maturity of a policy or upon the policyholder’s demise, is entirely tax-free under Section 10(10D) of the Income Tax Act.

Conditions for Section 10(10D)term insurance tax exemption:

  • If the premium is less than 10% of the sum promised or the sum assured is at least ten times the premium, the Section 10(10D) term plan tax benefit is available.
  • A 1% TDS (Tax Deducted at Source) is applied if the payout exceeds Rs. 1,00,000 and the insurer has access to the policyholder’s PAN.

Note: Currently, there are 2 income tax regimes for taxpayers — old and new. Before you file your income tax return, make sure to understand and use the correct tax 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.

Also Read: What do You need to Know Before Getting a Home Loan?

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