Aren't we all agree that insurance is great? Did you realize, though, that term insurance can help you save money on taxes? If you're a tax nerd, you should study the Income Tax Act's Section 80C, which basically outlines all the locations you may put your money to earn tax deductions. Term life insurance protects you and your loved ones against life's risks, as well as your money from taxes. It's important to have Term-life insurance to protect the future. How to choose the right Term-Insurance?
You can save taxes under the following section of the Indian Income Tax Act, 1961:
Tax deduction Under Sec 80C
Section 80C states that term insurance premiums up to Rs 1.5 yearly are tax-deductible, which means that these premiums will not be considered part of your taxable income.
However, if you surrender this policy before the two-year period has passed, you will not receive any tax benefits!
Please Note - Rs 1.5 lakh is the maximum tax deduction premiums, ULIPs, ELSS mutual funds, everything comes in there.
Condition for Deduction under Sec 80C:
- The annual premiums paid should not exceed 10% of the total guaranteed. If premiums exceed 10%, deductions will be imposed proportionally.
- For policies issued prior to March 31, 2012, the deduction will be available only if the annual premium does not exceed 20% of the total guaranteed.
- The Section states - If the policy is voluntarily canceled or relinquished before two years from the policy's inception, the policyholder will not be eligible to get the tax benefits under Sec 80C.
- Section 80C, on the other hand, isn't the only way to save money on taxes.
Tax deduction Under Sec 10 (10D)
Section 80C is not only the way insurance saves you tax, but the sum assured by the term life insurance plan is also completely tax-free.
This implies when the insurance payout is given to the nominee (in the case of the policyholder's untimely death), the profits are tax-free. Any bonus received with such an amount is tax-free too.
Condition for Exemption under Sec 10(D)
- Section 10 (10D) term plan tax benefits apply if the sum assured is at least 10 times the premium or the premium is less than 10% of the sum insured.
- If the compensation exceeds Rs.1,00,000 and the policyholder's PAN is provided to the insurer, a TDS (Tax Deducted at Source) of 1% is imposed.
Tax Benefits Under Sec 80(D)
There's also Section 80(D), which primarily deals with health insurance, but if your term plan comes with health riders, you can some tax up to Rs 25,000. Deductions under Section 80(D) are available for amounts up to Rs. 25,000.
Condition for Deduction under Sec 80(D):
- If you have purchased insurance coverage for your parents, you can claim an extra Rs. 25,000 deductions.
- The deduction limit increases to Rs. 50,000 if your parents are elderly citizens.