Last Updated on March 12, 2020 by Gopal Gidwani
With the beginning of the new financial year, you might scurry around to save your taxes. Since taxes can be an inevitable part of your financial planning system, you might look for tax-saving instruments. Although there are numerous tax-saving tools, term insurance can be one of the ideal ways to save taxes. Apart from financial protection, you can reduce your tax liability with a term plan. Therefore, let’s understand the meaning of term insurance plans in detail.
What is term insurance plan?
Term insurance plans are a part of traditional life insurance policies, which can aim to offer financial security to your loved ones. Since term insurance plans are protection plans, it can provide your family members with death benefits in your absence to help them financially. Apart from the protection benefits, you can choose a term plan for its tax benefits as well. Term insurance plans can allow you to claim deductions in accordance with Section 80C and exemption under Section 10(10D) of the Income Tax Act, 1961. While Section 80C can allow you to claim deductions up to Rs. 1.5 Lakh on your taxable income, you can receive a tax-free death/maturity payout under Section 10(10D).
Term insurance tax benefits under Section 80C
Since Section 80C can be a major advantage offered by life insurance plans, let’s first understand the term insurance tax benefits available under it:
Any individual assessee and Hindustan Undivided Families (HUF) can be eligible to claim deductions under Section 80C. The following people can claim deductions under the individual assessee category:
a) If you are the individual yourself
b) If your spouse is an individual assessee
c) If your parent is an individual assessee
Note: Any member of HUF can be eligible to claim tax benefits under Section 80C of the Income Tax Act, 1961.
As an individual assessee, you should fulfil the following conditions mentioned below to claim tax deductions under this section:
a) You can claim a deduction up to 20% of your sum assured value if you pay a premium value that is more than 20% of your agreed sum assured.
b) If you have bought a term policy after a specified date and the premium value is not more than 10%, you can claim a deduction.
c) If you have purchased a term plan after 1st April 2019 and the premium amount is not more than 10% of the agreed sum assured, you can claim a deduction even with a specific ailment or disease.
d) You can claim a tax deduction up to Rs. 1,50,000 under Section 80C.
When you purchase term insurance, you eventually become the primary policyholder of your selected policy. As a policyholder, you can obtain tax benefits according to Section 10(10D) of the Income Tax Act, 1961. If your insurer grants you any bonuses as an individual assessee, your money can be exempted from taxes. However, there can be specific conditions that might not allow this rule:
a) If you receive an amount under Section 80DD(3).
b) If you obtain an amount via Keyman Insurance Policy.
c) If you get any payout from an insurance policy purchased on 1st April 2003 or later to receive death benefits.
Under term insurance, your nominees can receive death benefits for their financial sustenance. The death benefits can be tax-free in accordance with Section 10(10D). However, if you purchase term insurance plans after 1st April 2003 and the premium paid during the on-going tenure is more than 20% of the total sum assured value, you might not be able to claim tax deductions.
As highlighted above, tax benefits can be an essential part of your term policy. Therefore, choose between the right term insurance plans in India that can let you receive maximum benefits as well as allow you to save more taxes. Moreover, see to it that you consult a financial expert since tax payment can be a complex procedure.