The section 10(10D) provides tax exemption on the death benefit of the term insurance policy. The nominee of the policyholder will get the tax redemption under this section, not the policyholder. This is because, nominee is the person who gets this amount after the demise of the insured individual.
Tax Benefits of Term Insurance Policy – Section 80C, 80D and 10(10D)
Although the primary intent of buying a term insurance plan is to get a life cover and safeguard the family's financial stability, you can also reap the tax benefits from it. The Income Tax Act of India allows you to reduce the total policy premium from your gross taxable income and reduce your obligations.
This is why before you file your ITR, you should be aware of different sections of the Income Tax Act that let you get term insurance tax benefits.
Term Insurance Tax Benefits Come Under Which Section?
The tax benefits on a term Insurance policy come under sections 80C, 80D and 10(10D) of the Income Tax Act of India. Read the list below to know about the maximum limit along with the conditions that you need to meet to get the tax deductions under these sections:
Section of the Indian Income Tax
Conditions and Other Details
Term Insurance Tax Benefit under Section 80C
Tax deductions up to ₹1.5 Lakh on your premium amount in a financial year
If the policy is purchased before 31 March 2012 and the total paid premium is lower than 20% of the assured sum, you can get the benefit. For policy purchased thereafter, the upper threshold of total premium becomes 10% of sum assured.
Term Insurance Tax Benefit under Section 80D
Tax deductions for up to ₹25,000 on your premium amount in a financial year. However, senior citizens can get a tax deduction for up to ₹50,000.
If your term plan comes with riders like critical illness cover, the policy will come within the health category, and you will be able to get the tax benefit.
Term Insurance Tax Benefit under Section 10(10D)
The section gives tax exemption with no upper limit. The amount you get as death benefit will remain excluded from the income tax obligations.
If you purchased your policy before 31 March 2012, and the total paid premium amount is below 20%, you will get the benefit. The upper threshold will be 10% for policy purchased thereafter.
Term Insurance Tax Benefit on Its Claim Amount
As mentioned in the table, the sum assured of a term insurance policy becomes tax-free if it meets certain conditions. In case the total outgoing premium amount is higher than the allowed tax-free limit, the insurance company will apply 5% TDS (Tax Deducted at Source) on your claimed amount, or sum assured. However, the TDS will not apply if the claimed amount is lower than or equal to ₹1 Lakh.
Let's assume that you have paid a total ₹8 Lakh as premium towards a term insurance plan purchased after 1 April 2012, and the sum assured is ₹50 Lakh. If your nominee claims the policy benefit, your insurance company will deduct TDS of 5% of ₹50 Lakh = ₹2.5 Lakh. This is because your total paid premium is not less than 10% of your sum assured amount.
Thus, term insurance tax benefits under different sections as mentioned above can help you significantly decrease your net taxable income. However, you should ideally count it as an additional benefit of this policy. The main advantage that this plan offers is financial security for your family in case of your unfortunate death.
FAQs about Term Insurance Tax Benefits:
You can not get the tax benefit under Section 10(10D) if the policy meets the following condition:
Purchasing date of the policy is on or before 31st March 2012, but the sum assured amount is more than 20% of total amount paid as premium
Purchasing date of the policy is on or after 1 April 2012, but the sum assured amount is more than 10% of total amount paid as premium
You can raise your claim for the term insurance tax benefit while filing Income Tax Returns (ITRs). Every financial year, the government of India sets a deadline for tax-paying citizens to file ITRs. You need to file it within that stipulated time frame.
You need to submit or attach the following documents while filing ITR to get the term insurance tax benefit:
- Receipts of your paid premiums of term insurance policy
- Policy papers
- Photo ID proofs
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- This is an informative article provided on 'as is' basis for awareness purpose only and not intended as a professional advice. The content of the article is derived from various open sources across the Internet. Digit Life Insurance is not promoting or recommending any aspect in the article or its correctness. Please verify the information and your requirement before taking any decisions.
- All the figures reflected in the article are for illustrative purposes. The premium for Coverage that one buys depends on various factors including customer requirements, eligibility, age, demography, insurance provider, product, coverage amount, term and other factors
- Tax Benefits, if applicable depend on the Tax Regime opted by the individual and the applicable tax provision. Please consult your Tax consultant before making any decision.