Tax Benefits under Term Insurance Policy

Term insurance plans have lots of tax saving benefits, which make them one of the best life insurance options available in the market.

Benefits under Section 80C of the Income Tax Act:

Section 80 C of the Income Tax Act, 1961 allows tax exemption up to Rs.1.5 lakhs p.a. on your Term Insurance plan. You can also claim this tax benefit on any other investments made apart from the life insurance.

Benefits under Section 10 (10D) of the Income Tax Act:

It basically offers exemption benefit. Here, any amount received under death benefit for the term plan or moneyback plan and maturity benefit for a moneyback plan, including bonuses if any, is exempted from tax. However, this clause won’t be applicable for the below:

• Any amount received under Section 80DD (3) or 80DDA (3).
• If any amount that has been received under the Keyman Insurance Policy.
• Any amount received which is not a part of the death benefit for a policy issued on or after April 1, 2003, but on or before the 31st day of March, 2012. It is also not applicable for exemption if the total premiums paid during the policy period are more than 20% of the total sum assured received.
• In case the term insurance policy is issued on or after April 1, 2012, then the exemption is applicable only if the total premium paid doesn't exceed 10% of the sum assured.

Under Section 80 DD (3) and 80 DDA (3) if the handicapped dependent predeceases the member paying for his medical treatment and maintenance, then such amounts will be treated as income and taxed accordingly.

Benefits under Section 80D of the Income Tax Act:

Section 80 D of the Income Tax Act, 1961 allows tax benefits on health insurance premium. So, if your term insurance plan or money back plan has an inbuilt or add-on cover in the form of Critical Illness Rider, Surgical Care Rider, Hospital Care Rider, etc. you can avail tax benefits.

However, there are certain clauses for the deductions:

• The tax deduction can be availed only for an amount not exceeding Rs. 25,000/-
• In case you avail the life insurance policy in your parent’s name, you will be eligible for an additional tax deduction benefit of Rs. 25,000/-.
• You will be eligible for a higher tax benefit of Rs. 50,000, in case you avail the life insurance policy in your senior citizen parent's name.

Apart from offering a life cover, a term insurance plan also ensures tax benefits, thereby quoting itself as an effective tax saving tool. At the same time, it is equally important to have thorough knowledge of the provisions while claiming tax or filing your tax returns. You should always keep yourself updated regarding the amendments that get introduced by the Income Tax Act, year on year.