Enjoy Term Insurance Tax Benefits Under Section 80D
Towards the end of every financial year, you hear a lot of people talking about tax planning. Most people will make strategic investments to minimise their taxes and maximise their savings. They use the deductions available under the Income Tax Act, 1961, to plan their taxes. Today, several people opt to purchase a term insurance plan to help them claim deductions under Sections 80C and 80D of the Income Tax Act. You can also use a term plan to enjoy tax benefits. Let’s find out how!
What Is Term Insurance?
A term plan offers life cover to the policyholder. It is a pure protection policy and does not offer maturity or investment benefits. These affordable plans allow individuals to enjoy high life cover at pocket-friendly rates. If something happens to the individual while the policy is active, the beneficiary will receive the death benefit payout. The idea is to provide the policyholder’s loved ones with financial stability when they need it the most. The beneficiary can use this money to replace lost income or pay off debts.
Term Insurance Tax Benefits Under Sections 80C and 10(10D)
With your term insurance policy, you can maximise your tax savings under Section 80C of the Income Tax Act, 1961. Here, you can claim deductions of up to INR 1,50,000 per year for the premiums you pay towards the upkeep of your life insurance policy. While claiming the deduction, remember that your premium amount should be less than 10% of the sum assured.
Additionally, under Section 10(10D) of the Income Tax Act, you can enjoy further term insurance tax benefits. Here, the payout that you or your beneficiaries receive from the term plan will not attract any tax.
Understanding Section 80D of the Income Tax Act
Section 80D of the Income Tax Act deals with health insurance policies. But, you can still enjoy Section 80D benefits against your term plan! Today, most term policies offer additional health cover. So, you may purchase a critical illness rider with your term plan. Since critical illness falls under the health category, you can now claim deductions under Section 80D of the Income Tax Act. Let’s take a closer look at what kind of deductions are allowed for term insurance policies under this section.
Let’s assume you pay the premiums for three term insurance plans. One plan is for you, one for your wife and the third is for your child. All three of you are below the age of 60 and have health riders on your policy. In total, you can claim a deduction of INR 25,000 for all three premiums. You can claim deductions against the rest of the premium under Section 80C of the Income Tax Act.
As a responsible child, you may also pay the premium for term plans for your parents. Let’s assume you have purchased separate policies for your parents who are above the age of 60. Both the term insurance policies have health insurance riders as well. You can claim an additional deduction of INR 50,000 under Section 80D. In total, you can claim Section 80D benefits up to INR 75,000 per year.
How Do I Claim Tax Benefitsfor Term Insurance Under Section 80D?
Since Section 80D only deals with health insurance, you need to be careful while claiming tax deductions for your term insurance policy. Start by checking your term plan details. See if there are any health riders you’d like to add to your policy. A critical illness rider, for example, will make you eligible to claim tax benefits under Section 80D. If you aren’t sure about the deductions, you can ask your insurance provider what qualifies as a health rider. A trusted financial consultant will also help you understand the tax benefits better. When you’re filing your taxes, make sure you enter all the details accurately. If you make a mistake, you risk losing your term insurance tax benefits.
With a term insurance policy, you get more than just life cover. You also get health riders and the opportunity to formulate a sound tax plan. By making smart investment choices, you can protect your family’s financial future while saving money today!
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