Tax Advantages of Term Insurance under Sections 80C, 80D, and 10(10D)
Term life insurance, a type of coverage providing life coverage for a specific period, offers tax benefits under the Income Tax Act in India, primarily covered under Section 80C, 80D, and 10(10D).
Section 80C
Premiums paid for term insurance policies are eligible for tax deduction up to ₹1.5 lakh in a financial year. This deduction is applicable if you follow the old tax regime, where you can include these premiums along with other eligible investments to reduce your taxable income[1][2][4].
Section 80D
Premiums paid for health-related riders attached to term insurance policies (such as critical illness or surgical care riders) can be claimed as tax deductions under Section 80D. The maximum deduction allowed under 80D for such premiums is up to ₹25,000 per year (can be higher depending on age and policy specifics). This allows additional tax savings when you have health-related add-ons to your term insurance[1][3][4].
Section 10(10D)
The death benefit or maturity proceeds received from a term life insurance policy are fully exempt from income tax under this section, regardless of the amount. This means that the sum assured paid out on death or maturity as per the policy terms is completely tax-free for the beneficiary[1].
Additional Notes
Under the new tax regime, the deduction under Sections 80C and 80D for term insurance premiums is not available; these benefits apply primarily under the old tax regime[2]. For claims exceeding ₹1 lakh in death benefits, insurers deduct 1% TDS (Tax Deducted at Source)[5].
Key Tax Benefits for Term Life Insurance in India
| Section | Benefit Description | Tax Benefit Limit | |-----------|-----------------------------------------------------------|-------------------------------------| | 80C | Deduction on premiums paid for term insurance | Up to ₹1.5 lakh per financial year | | 80D | Deduction on premiums paid for health-related riders | Up to ₹25,000 per year | | 10(10D) | Tax exemption on death benefit or maturity proceeds | Fully exempt from income tax |
These benefits help reduce taxable income and ensure the insurance payouts are tax-free, making term life insurance both a protective and a tax-efficient financial instrument in India[1][2][3][4][5].
- A maximum deduction of ₹25,000 can be claimed on the premium paid towards health insurance for self, spouse, and dependent children.
- Term Life Insurance also offers tax deductions under Section 80D for health-related riders like critical illness cover, surgical care cover, and other eligible health-related add-on covers.
- To avail of both 80C and 80D tax deductions, health riders must be added to the term plan.
- Tax benefits on term insurance riders are applicable only on health-related add-on covers.
- The maximum limit for a deduction under Section 80D is Rs 1 lakh.
- The premium paid for a term plan is eligible for a deduction under Section 80C, while the premium paid for any health riders availed is eligible for a deduction under Section 80D.
- Premiums paid for health insurance for self, spouse, dependent kids, and dependent parents are eligible for deductions under Section 80D.
- For dependent parents above 60 years of age, a ₹50,000 deduction can be claimed.
Term life insurance serves as a dual financial instrument, offering protection and tax efficiency in personal-finance, as premiums for term insurance policies can be deducted up to ₹1.5 lakh under Section 80C, and premiums for health-related riders like critical illness or surgical care riders can be claimed as tax deductions up to ₹25,000 per year under Section 80D. The death benefit or maturity proceeds received from a term life insurance policy are fully exempt from income tax under Section 10(10D).
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