If you want to secure your future and that of your family, term insurance is a solid option. And on top of that, it can also save tax – under Section 80C! This is a plan that provides financial protection and also benefits from tax savings. Let’s explain in simple terms what the tax benefits of term insurance are, how they work, and why it’s a smart move!
What is Term Insurance?
Term insurance is a simple life insurance plan – you pay a premium every year or month, and if something happens to you (like untimely death), your family receives a large sum assured. This plan is inexpensive and offers high coverage. But the best part? Its premiums are tax-free!
Section 80C: How to Save Tax?
Section 80C is a provision of the Income Tax Act, 1961, which allows you to claim a tax deduction of up to ₹1.5 lakh on your income. Term insurance premiums qualify for this! This means that the premium you pay for term insurance is deducted from your taxable income, reducing your tax bill.
How does it work?
If you pay a premium of ₹50,000 for term insurance, the entire ₹50,000 can be deducted from your taxable income (maximum limit up to ₹1.5 lakh).
This deduction is applicable for both salaried and self-employed individuals, provided you are following the old tax regime (Section 80C is not available in the new tax regime).
Example: Your annual income is ₹10 lakh, and you pay a premium of ₹50,000. Your taxable income will be ₹9.5 lakh, and taxes will be lower!
More Tax Benefits!
Besides Section 80C, term insurance has other benefits:
Section 80D: If your term plan has health-related riders (such as critical illness cover), you can claim a tax deduction on premiums up to ₹25,000 (or ₹50,000 for seniors).
Section 10(10D): If your term plan matures or receives a death benefit, that money is tax-free! Meaning, your family won’t have to pay a single penny of tax on the payout.
What Can I Claim?
- The entire premium of term insurance (within the limit of just ₹1.5 lakh).
- If you are also taking a term plan for your spouse or children, their premiums can also be claimed under Section 80C.
- Premiums for health riders (such as critical illness or accidental death cover) are deducted under Section 80D.
Points to Remember
- Old Tax Regime Only: These benefits are available only under the old tax regime. Sections 80C and 80D are not applicable under the new regime.
- Limit of ₹1.5 lakh: Under Section 80C, you can claim up to ₹1.5 lakh for term insurance, PPF, ELSS, and other investments combined.
- Keep Documents Ready: Keep premium receipts and policy documents, as proof may be required at the time of tax filing.
- Claim on Time: Pay the premium by the end of the financial year, otherwise the deduction will not be available.
| Features | Description |
|---|---|
| Tax Benefit Sections | Section 80C, 80D, 10(10D) |
| Section 80C Deduction Limit | Up to ₹1.5 lakh (per year) |
| Section 80D Deduction Limit | ₹25,000 (or ₹50,000 for seniors) |
| Death Benefit Tax | Tax-free under Section 10(10D) |
| Eligibility | Must choose the old tax regime |
| Premiums Claimable | Term Insurance, Spouse/Child Premiums, Health Riders |
Pros and Cons
Pros:
- Term insurance premiums can save up to ₹1.5 lakh in tax under Section 80C.
- Extra deductions are available for health riders under Section 80D.
- The death benefit is completely tax-free under Section 10(10D).
- Affordable premium, high coverage, and tax savings all in one!
- You get both financial security and tax benefits for your family.
Cons:
- No tax benefits are available under the new tax regime.
- Remaining investments must be adjusted against the ₹1.5 lakh limit under Section 80C.
- Separate documentation is required for health riders.
- If premiums are not paid on time, the deduction will not be available.
Conclusion
Term insurance is a smart way to secure your family and save on taxes! Deduction up to ₹1.5 lakh under Section 80C, extra savings for health riders under Section 80D, and tax-free payout under Section 10(10D) – all these make it a great deal. If you are in the old tax regime and want to save tax with an affordable plan, term insurance is definitely perfect.
Compare policies, check the premium, and confirm with your CA or financial advisor. Let us know in the comments how you found this tax benefit of term insurance and will you try it?
