Every financial year, tax planning is usually discussed and taken care of towards the end. Most people make wise investments to reduce taxes and increase their savings.
They prepare their taxes using the deductions allowed by the Income Tax Act of 1961.
To claim deductions under Sections 80C and 80D of the Income Tax Act, many people today choose to buy a term insurance.
Term insurance: what is it?
A term plan provides the insured with life insurance. It does not offer maturity or investing rewards; it is only a protection policy. These cost-effective plans give people access to life insurance at reasonable costs.
The beneficiary is paid the death benefit if the insured person passes away while the policy is in effect. The goal is to give the policyholder’s loved ones financial security during critical times. The recipient may use this money to settle debts or replace lost income.
Advice: An online term insurance calculator can help you find cost-effective premium rates depending on your requirements.
Tax benefits for term insurance under sections 80C and 10 (10D)
By using your term insurance policy, you can maximise your tax savings allowed by Section 80C of the Income Tax Act of 1961. Premiums paid to maintain your life insurance coverage in India can be deducted up to INR 1,50,000 per year. When you ask for a concession, remember that your premium must be less than 10% of the amount paid.
Additional term insurance tax benefits are available under Section 10(10D) of the Income Tax Act. No taxes will be levied on the payout from the term plan you or your beneficiaries receive.
Understanding the income tax act’s section 80D
The Income Tax Act’s Section 80D addresses health insurance contracts. However, you can still use your term plan’s Section 80D benefits! Most term insurance policies today can include an additional health insurance component.
You can add a critical illness rider to your term insurance policy. You can use Section 80D of the Income Tax Act to get a tax break. Let’s examine the types of deductions for term insurance policies permitted under this clause.
Assume you have paid the premiums for three different term insurance policies. You have a plan, your wife has a plan, and your child has a plan. You are all under 60 and have health riders on your insurance policies.
You are allowed to deduct INR 25,000 in total for the three premiums. Under Section 80C of the ITA, you may remove the remaining premiums.
Now, as a responsible child, assume that you have to contribute to your parents’ term insurance premiums.
Let’s say you have separate policies for each of your parents who are older than 60. Section 80D allows you to deduct an additional INR 50,000. You may claim Section 80D benefits of up to INR 75,000 annually.
Advice: It has become convenient to plan your finances and premium rates using an online term insurance calculator.
How do I claim term insurance tax benefits under section 80D?
Because Section 80D only applies to health insurance, you must be careful when you claim a tax deduction for your term insurance policy. Check the specifics of your term plan first to understand what term insurance tax benefits you can avail.
Check to see if you can add any health riders to your policy. For instance, a critical illness rider entitles you to Section 80D tax advantages. Ask your insurance company what counts as a health rider if you need clarification on the deductions.
A reputable financial advisor can also assist you in better comprehending the tax advantages. Ensure you enter all the data accurately when you file your taxes. You risk losing the tax advantages of term insurance if you make a mistake.
Conclusion:
Term insurance is a pure protection strategy designed to safeguard your loved ones’ future and guarantee that the family’s life objectives can be achieved. Additionally, under Sections 80C and 10(D) of the Act, your nominee or family may be exempt from paying taxes on the death benefit, and you may deduct the cost of term insurance premiums from your taxes.
Additionally, the Act’s Section 80D enables you to claim tax advantages for a select group of riders that you purchase to pay for medical costs associated with severe illnesses or impairments. Go ahead and purchase term insurance coverage; it might be a priceless present for your loved ones.
The tax benefits availed on financial products will directly depend on the type of tax regime chosen. You can enjoy the above term insurance tax benefits only if you have chosen the appropriate tax regime for filing.
Insurance is the subject matter of solicitation. For more details on benefits, exclusions, limitations, terms, and conditions, please read the sales brochure/policy wording carefully before concluding a sale.
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