VMPL
New Delhi [India], June 17: While the main objective of buying term insurance is to ensure financial security to family members in the policyholder’s absence, it also offers additional benefits, such as tax savings. These tax benefits can enhance the product’s appeal and assist you in saving money, which can then be allocated towards both future goals and present expenses.
Let’s find out more about the tax benefits of purchasing a term insurance plan.
Term insurance tax benefits in India
Term insurance plans in India are among the list of financial products that are eligible for a tax deduction under The Income Tax Act, 1961. This act comprises several sections that enable you to reduce your annual taxable income and save money spent on tax. Let’s explore the sections that offer tax benefits on a term plan:
1. Section 80C of The Income Tax Act, 1961
Section 80C of The Income Tax Act, 1961 allows you to claim tax deductions up to a maximum of Rs 1.5 lakh on the premium you pay towards your term insurance plan. This tax deduction can be claimed every financial year, and enables you to save up to Rs 46,800 per annum from your taxable income.
2. Section 10 (10D) of The Income Tax Act, 1961
Another tax benefit under the act that you can claim for your term insurance is the tax-free benefit under Section 10 (10D). The insurance payout that is paid to the nominee of the term plan in the tragic event of the policyholder’s absence is entirely tax-free under Section 10 (10D). This means the payout is not added to the nominee’s taxable income and is exempt from tax, regardless of the amount.
3. Section 80D of The Income Tax Act, 1961
Section 80D of The Income Tax Act, 1961, provides tax deductions on health insurance premiums. While term insurance differs from health insurance, if your term plan includes a health rider, such as a critical illness rider, you can claim tax benefits under Section 80D.
If you are under 60, you can deduct up to Rs 25,000 annually for premiums paid for yourself, your spouse and dependent children. If you are 60 or older, this limit increases to Rs 50,000. Additionally, you can claim up to Rs 25,000 or Rs 50,000 for your parents’ insurance premiums if they are 60 or older.
Hindu Undivided Families (HUFs) can also deduct the premium paid for a health insurance rider for all family members. The limit for HUFs is capped at Rs 25,000.
How do you maximise tax benefits from a term insurance plan?
Below are some ways to maximise your tax benefits from a term insurance plan:
* Buy term insurance early: Buying a term insurance plan early not only provides financial protection for your loved ones but also enables you to claim tax benefits sooner. Starting early helps you accumulate substantial tax benefits over the years, which ultimately results in saving a significant amount of money in the long run.
* Add riders to your policy: You can enhance your term insurance coverage by adding riders to your policy. Riders like critical illness benefits provide additional financial protection against major and minor illnesses. The premiums paid for these riders can be claimed as deductions under Section 80D, offering you extra tax benefits. However, it is crucial to note that adding riders may increase your premium amount. You can use a term insurance calculator to understand how these additions impact your budget and tax savings effectively.
* Proactively file your Income Tax Returns (ITR): You must ensure that you proactively file your ITR and maintain accurate records of all your premium payment slips. This can help you claim the available tax deduction limits and ensure that you receive the maximum tax benefits entitled to you under the various sections of The Income Tax Act, 1961.
* Stay updated with tax laws: Tax laws are subject to change, so it is essential to stay informed and updated with the latest regulations and rules. Staying updated can help you incorporate suitable tax planning strategies that can maximise your tax savings.
Conclusion
Tax benefits are undoubtedly one of the most attractive features of term insurance, but they are just one facet of its overall significance. Term insurance is a multifaceted financial tool with a spectrum of benefits beyond tax savings. It provides numerous advantages, including financial protection for loved ones, peace of mind, affordability and transparency. It is important to analyse your needs carefully and utilise the tax benefits available to you to maximise your term plan’s benefits.
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