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Term Insurance Tax Benefit Under Section 80C, 80D, & 10(10D)

IndiaFirst Life
• 12 Jun, 2024

Key Takeaways

Term insurance premiums may qualify for deductions under Section 80C, subject to applicable conditions and limits.
Eligible health-related insurance premiums or riders may qualify for Section 80D deductions separately.
Eligible term insurance death benefits can generally receive tax exemption under Section 10(10D), subject to applicable conditions.
Tax benefits depend on the policy structure, premium, taxpayer, tax regime and prevailing income tax laws, so you should verify eligibility before making a claim.

The fundamental goal of buying a term life insurance plan is to ensure your loved ones will not experience financial stress in your absence. For those wondering what term life insurance is, it is a policy that provides life cover for a specific tenure, in return for a premium.

Paying your term insurance premiums can earn you some benefits that you may not have expected.

If you have opted for the old tax regime and are paying term life insurance premiums, you may be able to claim exemptions under Section 80C of the Income Tax Act, 1961. Depending on the policy chosen, you may also be able to claim similar term insurance premium tax benefits under Section 80D of the Income Tax Act, 1961, which covers premiums paid towards health coverage.**

How can that be done? How can you cover and claim exemptions for health coverage with term life insurance premiums? Let’s find out.

Term Insurance Tax Benefits**

Term insurance provides tax benefits under three primary sections of the Income Tax Act: Section 80C, Section 80D, and Section 10(10D). Each section offers unique advantages, contributing to overall tax savings.

Section 80C: Term Insurance Premium Tax Benefit

Under Section 80C of the Income Tax Act, premiums paid towards term insurance policies are eligible for tax deductions. It is applicable to premiums paid for self, spouse, and children.

Eligibility: Individual and Hindu Undivided Family (HUF) taxpayers.
Deduction Limit: Up to ₹1.5 lakhs per annum.

Conditions: The premium paid should not exceed 10% of the sum assured for policies issued after April 1, 2012. For policies issued before this date, the premium should not exceed 20% of the sum assured, so that the validity of the term plan tax benefit can be used.
To make your tax planning easier from the start, consider using a term life insurance premium calculator. It gives you an estimate of the premium, so you can choose the right term plan and enjoy tax benefits as planned.

Section 80D: Term Insurance Tax Exemption for Health Riders

Section 80D provides tax benefits for premiums paid towards health-related riders attached to term insurance plans. It includes health insurance premiums for self, spouse, children, and parents. For example, if you have attached a rider to your term life policy that brings you health insurance benefits, such as a critical illness rider add-on, you may want to consider making a term insurance tax exemption claim under this section.

Eligibility: Individual and HUF taxpayers.

Deduction Limit: Up to ₹25,000 for individuals and ₹50,000 for senior citizens. It is separate from the Section 80C limit.

Conditions: The benefit is available for health riders such as critical illness, surgical care, and hospital care.

Section 10(10D): Tax Exemption on Death Benefit

Section 10(10D) of the Income Tax Act provides tax exemptions on the death benefit received from term insurance plans. It is applicable for all term insurance plans meeting the specified conditions. So, if your nominee makes a claim on your primary term insurance benefit, they do not have to pay taxes on the received amount, if they claim an exemption under this section.

Eligibility: The death benefit received by the nominee is fully exempt from tax.
Conditions: The premium paid should not exceed 10% of the sum assured for policies issued after April 1, 2012. For policies issued before this date, the premium should not exceed 20% of the sum assured.

Understanding Term Insurance Tax Benefits

Beyond the core life cover, you can enhance your term life policy with riders, which also offer attractive tax benefits of term insurance.

A critical illness rider provides a lump sum payout in case the insured person is diagnosed with a life-threatening disease. The payout can be used in any way the beneficiaries wish. Similarly, other health-related riders also provide a payout in case a specific situation occurs.

The premium for these riders is calculated separately from the base cover cost of the life insurance policy. This separate premium you pay can be used to claim tax deductions under Section 80D of the Income Tax Act. The deduction limit for individuals under 60 years of age is up to ₹25,000 per year. It is extended to ₹50,000 for senior citizens.

If you have a health insurance policy, the deduction against its premium will be subject to the same cap.

Tax Benefits on Term Insurance Riders

Term insurance riders can extend protection beyond the basic death benefit by covering specific risks such as critical illness, accidental disability or other health-related contingencies. However, the tax treatment of a rider depends on its nature and the applicable provisions of the Income Tax Act. You should not assume that every rider attached to a term plan automatically qualifies for an additional deduction.

For eligible health insurance-related premiums, Section 80D may provide a deduction subject to the applicable conditions and limits. The current tax provisions allow deductions for health insurance premiums paid for yourself, your spouse, dependent children and parents, with higher limits applicable when a senior citizen is covered.

Before claiming a deduction for a rider, check the policy documents and confirm that the premium qualifies under the relevant tax provision. The tax benefit should be treated as an additional advantage of suitable protection rather than the primary reason for purchasing a rider.

Exclusions Under Section 80D of the Income Tax Act

Section 80D is intended primarily for specified health insurance premiums and certain eligible medical expenditure.

It should not be treated as a general deduction for every premium paid towards a life insurance policy.
The base premium of a standard term insurance policy is generally considered under Section 80C when the applicable conditions are satisfied, rather than Section 80D.
Similarly, merely describing a rider as a health-related benefit does not by itself establish eligibility under Section 80D.You should therefore verify the exact nature of the rider, the premium allocation and the insurer's documentation before making a claim.
The Income Tax Department specifies separate limits for health insurance premiums and preventive health check-ups under Section 80D.

Payments Eligible for Deductions Under Section 80D

Eligible payments under Section 80D generally include health insurance premiums paid for yourself, your spouse and dependent children, as well as eligible premiums paid for parents. The deduction limit is ₹25,000 for self, spouse or dependent children, increasing to ₹50,000 where the applicable covered person is a senior citizen. A separate limit applies to parents, with the same higher limit where the parent is a senior citizen.

Preventive health check-up expenses can also qualify, subject to the prescribed overall limits. The deduction is not an unlimited tax saving and cannot simply be added to the ₹1.5 lakh Section 80C limit.

If you are considering a term plan with health-related riders, examine the policy structure carefully and retain premium receipts and supporting documents for your tax records.

Eligibility for Term Insurance Tax Benefits Under Section 10(10D)

Section 10(10D) deals with the tax treatment of amounts received under life insurance policies, subject to the conditions and exclusions prescribed under the law. For a conventional term insurance policy, the death benefit received by the nominee is generally treated as exempt when the applicable conditions are satisfied.

The tax treatment can differ for policies involving maturity or return-of-premium benefits and for certain high-premium insurance policies. Consequently, you should review the specific policy terms and applicable provisions instead of assuming that every amount received from every life insurance policy will automatically be tax-free.

It is also important to distinguish between the tax deduction available to the policyholder for eligible premiums and the tax treatment of benefits received by the policyholder or nominee. These are separate provisions and operate under different conditions.

Common Mistakes That Can Reduce Term Insurance Tax Benefits

Several mistakes can affect your ability to claim the available tax benefits:

Assuming that the entire premium is automatically deductible without checking the applicable conditions.
Treating the ₹1.5 lakh Section 80C limit as an exclusive limit for term insurance instead of recognising that it is a combined limit for eligible investments and payments.
Claiming Section 80D for a rider without confirming that the payment meets the conditions prescribed for the deduction.
Choosing the new tax regime and still expecting deductions available under the old regime.
Failing to retain premium receipts, policy documents and other supporting records.
Ignoring the applicable premium-to-sum-assured conditions for eligible life insurance policies.
Buying a policy primarily for tax savings instead of assessing the family's actual protection requirement.

The Income Tax Department confirms that life insurance premium is included within the combined ₹1.5 lakh Section 80C deduction limit under the old regime.

Common Myths About Term Insurance Tax Benefits

Myth 1: Every term insurance premium is deductible.
Not necessarily. The deduction depends on the applicable tax regime and statutory conditions.

Myth 2: Section 80D covers the entire term insurance premium.
Section 80D is intended for eligible health insurance-related payments and specified medical expenditure, not the ordinary base premium of a term life policy.

Myth 3: The ₹1.5 lakh deduction is only for insurance.
No. Section 80C has a combined limit covering several eligible payments and investments.

Myth 4: The new tax regime provides the same Section 80C benefit.
The new regime generally offers lower tax rates with fewer deductions, while Section 80C deductions are available under the old regime subject to the applicable rules.

Choose the Right Term Insurance Plan for Maximum Tax Benefits

Tax efficiency should be considered alongside the primary purpose of term insurance: protecting your family's financial future. Start by estimating your family's future expenses, outstanding liabilities, children's education costs and other long-term financial commitments.

Next, compare the coverage amount, policy tenure, premium, payout structure and available riders. A term insurance calculator can help you estimate the premium associated with different coverage levels.

You should also consider the tax regime applicable to you before relying on tax deductions. Selecting a policy solely because its premium offers a potential deduction may result in inadequate coverage. The right approach is to first determine your protection requirement and then evaluate the applicable tax benefits.

How Term Insurance Tax Benefits Work Under the Old vs. the New Tax Regime?

The choice between the old and new tax regimes can significantly influence the value of deductions available to you. Under the old regime, eligible life insurance premiums can qualify for Section 80C deductions, subject to the prescribed conditions and the combined ₹1.5 lakh limit.

The new tax regime is the default regime for individual taxpayers, although eligible taxpayers can opt for the old regime. The Income Tax Department states that the old regime provides access to various deductions and exemptions, while the new regime has lower rates with fewer deductions.

Therefore, if your financial planning includes Section 80C deductions for term insurance, compare your tax liability under both regimes before making a decision. Your overall income, investments and other eligible deductions should be considered rather than evaluating term insurance in isolation.

How to Claim Term Insurance Tax Benefits?

To claim an eligible deduction, first confirm that your policy and premium satisfy the applicable provisions. Keep your policy document, premium payment receipts and other supporting records readily available.

While filing your income tax return, enter the eligible premium amount under the relevant deduction section. For Section 80C, the Income Tax Department requires taxpayers claiming the deduction to provide details such as the policy number or document identification number and the eligible amount.

If you are claiming a health insurance deduction under Section 80D, maintain the relevant premium receipts and supporting documents. You should claim only the amount that is actually eligible under the applicable provisions.

Eligibility Criteria to Claim Tax Benefit

Your eligibility depends on the nature of the payment, the policy and the tax regime selected. For Section 80C, life insurance premium is an eligible payment subject to the prescribed conditions and the overall deduction limit. The deduction is available under the old regime and is not generally available under the new regime.

For Section 80D, you must satisfy the conditions applicable to eligible health insurance premiums or specified medical expenditure. For Section 10(10D), the amount received must fall within the scope of the exemption and satisfy the applicable statutory conditions.

You should also ensure that the policy remains compliant with the relevant requirements throughout the period for which you claim the benefit.

Exclusions Under Income Tax Act: What Term Insurance Tax Benefits Don't Cover

Tax benefits are subject to statutory conditions and should not be considered automatic. Payments that do not qualify under the relevant section cannot be claimed simply because they are associated with an insurance policy.

Similarly, exceeding the prescribed limits does not create an additional deduction. For example, Section 80C has a combined deduction ceiling of ₹1.5 lakh under the old regime.

You should also distinguish between deductions for premiums and exemptions on policy proceeds. A tax deduction reduces eligible taxable income, whereas an exemption can exclude a qualifying receipt from taxable income. These mechanisms should not be treated as interchangeable.

GST on Term Insurance Premiums and Its Impact on Tax Deductions

GST forms part of the amount you pay towards an insurance premium, but you should not automatically assume that the GST component creates a separate tax deduction. The tax treatment of the premium should be determined according to the applicable provisions and the amount eligible under the relevant section.

For practical tax planning, you should retain the insurer's premium receipt showing the premium and applicable taxes. This provides a clear record when you are determining the amount paid and preparing your tax return.

How Much Tax Can You Save With Term Insurance?

The actual tax saving depends on your eligible premium, available deduction limit, taxable income and applicable tax regime. For example, if you have ₹1 lakh of eligible Section 80C payments and have sufficient taxable income, the potential reduction in tax will depend on the marginal tax rate applicable to you.

If you are in a 20% marginal tax bracket, a ₹1 lakh eligible deduction could reduce your tax liability by approximately ₹20,000 before considering applicable cess and other factors. At a 30% marginal rate, the corresponding reduction could be approximately ₹30,000 before cess, subject to the applicable rules and available deduction.

Importance of Term Life Insurance**

Earning tax exemptions for the premiums paid and benefits received from your term life insurance policy is a worthwhile proposition for getting a new policy. However, the fundamental purpose of buying a term life insurance policy should ideally be to get some form of financial protection for your loved ones. The term insurance deduction in income tax for premiums and benefits received could be viewed as an additional advantage of buying term insurance.

To better understand the benefits you may expect, you may consult a financial advisor. You may also use a term insurance calculator, which is a valuable tool that helps you determine the appropriate coverage amount and premium based on your financial needs and liabilities. This may help you understand how much tax exemption you may be able to claim.

Conclusion

Term insurance is not only a crucial tool for financial protection but also offers significant tax benefits under Sections 80C, 80D, and 10(10D). Additionally, for comprehensive financial protection, you can consider the IndiaFirst Life GOLD Term Plan. It offers whole-life or limited-term cover up to age 85, with a choice between pure protection and return of premium. You can also select the death benefit as a lump sum, monthly income or a combination of both. The plan additionally offers a 16% level premium discount for women, health management services worth up to ₹75,000 annually and the option to extend cover to your spouse through the Soulmate Benefit.

Putting your hard-earned money in the right term insurance plans at the right time can help secure your family's financial future and provide peace of mind, - (knowing that they are protected even in your absence).**

Before You Go

Know the cost of protecting tomorrow today, use a term plan calculator to estimate your premium and choose a cover that fits your financial goals.

[Check Your Life Cover]

FAQs**

1. What is the maximum tax deduction I can claim for my term insurance premium?

You can claim a deduction of up to ₹1.5 lakh per financial year for your term life insurance premium under Section 80C. This limit includes other investments like ELSS and PPF. If you have health riders, you can increase your term insurance tax benefit by claiming an additional deduction under Section 80D.

2. Under which section is the death benefit from a term plan tax-free?

The death benefit received by your nominees is completely tax-exempt under Section 10(10D) of the Income Tax Act, 1961. This is one of the most significant benefits of term insurance, as it ensures your family receives the full sum assured without any tax deductions.

3. Can I claim tax benefits for a term insurance policy bought for my spouse?

Yes, you can claim term plan tax benefits for your spouse, as long as the policy is in your name. You can buy the policy in your name but still have your spouse as the insured person. In this case, the premiums paid for such a plan are eligible for a tax deduction under Section 80C, subject to the overall limit of ₹1.5 lakh. This helps families secure their coverage while also maximising their term life insurance tax benefits.

4. Is there a condition linking the premium to the sum assured for tax benefits?

Yes, for policies issued after April 1, 2012, the premium should not exceed 10% of the sum assured to avail of the term insurance tax benefits under the section which you plan to use. Using a term life insurance premium calculator can help you find a plan that meets this criterion.

5. Can I claim a tax deduction for my entire term insurance premium?

You can claim an eligible term insurance premium under Section 80C, subject to the applicable premium-to-sum-assured condition and the overall ₹1.5 lakh limit shared with other qualifying deductions. The deduction is generally relevant when you choose the old tax regime.

6. Can I claim Section 80D for a critical illness rider?

Section 80D is intended for eligible health insurance premiums and specified medical expenses. A health-related rider may qualify only if it meets the applicable requirements. You should check the rider terms and premium details before claiming the deduction.

7. Is the term insurance death benefit taxable for the nominee?

An eligible death benefit under a life insurance policy is generally exempt under Section 10(10D), subject to the conditions and exclusions prescribed under the law. Your nominee should retain the policy and claim-related documents for records.

8. Can I claim term insurance tax benefits under the new tax regime?

Generally, no. Deductions such as Sections 80C and 80D are not available under the new tax regime. If you want to claim eligible deductions, you should assess whether opting for the old regime is beneficial based on your overall income and deductions.

** Tax exemptions are as per applicable tax laws from time to time.

Disclaimer

IndiaFirst Life Insurance Company Limited, IRDAI Regn No.143, CIN: U66010MH2008PLC183679, Address: 12th & 13th floor, North Tower, Building 4, Nesco IT Park, Nesco Centre, Western Express Highway, Goregaon (East), Mumbai – 400 063. Toll free No – 18002098700. IndiaFirst Life Insurance Company Limited is only the name of the Life Insurance Company and IndiaFirst Life Guardian of Life Dreams Term Plan (UIN 143N081V01) is only the name of the Life Insurance Product and does not in any way indicate the quality of the contract, its future prospects, or returns. For more details on risk factors and terms and conditions, please read the sales brochure carefully before concluding the sale. Trade logo displayed above belongs to our promoter M/s Bank of Baroda and is used by IndiaFirst Life Insurance Co. Ltd under License.

Term Insurance Tax Benefit Under Section 80C, 80D, & 10(10D)

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हमें फ़ॉलो करें

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IRDAI की सूचना

Term Insurance Tax Benefit Under Section 80C, 80D, & 10(10D)

Are you an employee of IndiaFirst Life?

Related Articles

Term Insurance Tax Benefits**

Section 80C: Term Insurance Premium Tax Benefit

Section 80D: Term Insurance Tax Exemption for Health Riders

Section 10(10D): Tax Exemption on Death Benefit

Understanding Term Insurance Tax Benefits

Tax Benefits on Term Insurance Riders

Exclusions Under Section 80D of the Income Tax Act

Payments Eligible for Deductions Under Section 80D

Eligibility for Term Insurance Tax Benefits Under Section 10(10D)

Common Mistakes That Can Reduce Term Insurance Tax Benefits

Common Myths About Term Insurance Tax Benefits

Choose the Right Term Insurance Plan for Maximum Tax Benefits

How Term Insurance Tax Benefits Work Under the Old vs. the New Tax Regime?

How to Claim Term Insurance Tax Benefits?

Eligibility Criteria to Claim Tax Benefit

Exclusions Under Income Tax Act: What Term Insurance Tax Benefits Don't Cover

GST on Term Insurance Premiums and Its Impact on Tax Deductions

How Much Tax Can You Save With Term Insurance?

Importance of Term Life Insurance**

Conclusion

Before You Go

FAQs**

1. What is the maximum tax deduction I can claim for my term insurance premium?

2. Under which section is the death benefit from a term plan tax-free?

3. Can I claim tax benefits for a term insurance policy bought for my spouse?

4. Is there a condition linking the premium to the sum assured for tax benefits?

5. Can I claim a tax deduction for my entire term insurance premium?

6. Can I claim Section 80D for a critical illness rider?

7. Is the term insurance death benefit taxable for the nominee?

8. Can I claim term insurance tax benefits under the new tax regime?

Get in touch with an expert

Our Life Insurance Plans

Term insurance

ULIP – Unit-Linked Insurance Plan

Child Education Plan

Retirement And Pension Plans

Savings Plan

संबंधित ब्लॉग

Explore our calculators to plan for your financial goals

हमें फ़ॉलो करें

पंजीकृत कार्यालय

IRDAI की सूचना