The most fundamental kind of life insurance, term insurance, offers a person life protection for a predetermined amount of time in exchange for regular (or a lump sum) premium payments. The policy’s nominee will be paid a death benefit according to the policy’s provisions if the life insured passes away during the policy period. Plans for term insurance would undoubtedly be advantageous for people trying to reduce their tax obligations. Any term insurance policyholder qualifies for certain applicable tax advantages under the Income Tax Act of 1961.
Customers of term insurance plans receive tax breaks under Section 80(80C) of the Income Tax Act of 1961 on annual premiums paid up to Rs 1.5 lakhs. In addition, nominees of policyholders also get tax-free payouts of their sum assured amounts or death benefits under Section 10 (10D). This is one of the biggest reasons why people buy term insurance, i.e., to safeguard their family’s financial future while saving on taxes simultaneously. However, did you know that tax deductions are also available under Section 80D of the Income Tax Act for term insurance policies? Here’s learning more about the same.
Tax Benefits of Term Insurance- A Quick Glimpse
Your premium payments are eligible for tax deductions under Section 80(80C) of the Income Tax Act, as mentioned. The maximum applicable deduction is Rs. 1.5 lakh. However, this section also covers investments made in several other instruments, including PPF and tax-saver FDs, to name a few.
You can always use a term insurance premium calculator to work out your payable premium amount for a certain amount of coverage. In the event of the policyholder’s demise within the policy period, the insurer will pay out the sum assured to the nominees, and this will be completely tax-free as well. Coming to the article’s core focus, additional deductions are available under Section 80D if a suitable rider is added to the term policy in question.
Section 80D and its Benefits
Under Section 80D, you can effectively deduct your health insurance premiums (up to ₹25,000 if you buy for yourself, up to ₹50,000 if you buy for your parents above 60) from your taxable income. This section focuses on health insurance tax deductions primarily. However, Section 80D benefits can be gained through term insurance plans because many insurers offer a term plan with a critical illness rider. Basically, you can avail of the tax benefits under section 80D if you have chosen health-related riders such as critical illness coverage, surgical care cover, and any other health-related covers. In other words, you can gain health insurance coverage while saving money on taxes by adding these riders to your term insurance policies.
Here are some tips on how to maximize your tax savings under Section 80D:
- Know The Limits: The maximum amount you can claim as a tax deduction under Section 80D for term insurance premiums is Rs. 25,000 per fiscal year. If you are paying more than this, you will not be able to claim any additional tax savings.
- Keep Records: It’s essential to keep records of the premium paid for your term insurance policy and any other health insurance riders you may have. This will help you to accurately claim your tax deductions when you file your Income tax returns.
- Take Advantage Of The Senior Citizen’s Limit: If you are a senior citizen (60 years or older), you can claim a higher tax deduction of Rs. 50,000 under Section 80D.
- Bundle With Other Deductions: If you have other medical expenses, such as hospitalization costs, you can bundle them with your term insurance premium to claim a higher tax deduction under Section 80D.
- Be Aware Of Other Tax-Saving Options: The premium you pay for term insurance can be combined with other tax-saving options for tax savings. For example, tax-saving investments under Section 80C or tax savings under Section 80CCD or Section 80DDB for medical expenses. You can read up online on these sections and what deductions they offer.
- Plan In Advance: It’s always a good idea to plan and consult with a tax professional or financial advisor to help maximize your tax savings. They can help you understand the different tax-saving options available and assist you in making the most of them.
In conclusion, term insurance protects your loved ones and offers tax-saving opportunities under Section 80D of the Income Tax Act in India, along with other sections. You can make the most of your tax savings by understanding the limits and other options, keeping records, planning in advance, and consulting with a tax professional or financial advisor. Be sure to choose a policy with the right coverage and tenure to fulfill its primary objective of being a contingency plan for your family. Tax benefits are essential but secondary when it comes to term insurance.