Term Insurance Tax Benefits

Term Insurance Plans are very useful to face life uncertainty. It gives you a life coverage in which your family will enjoy the benefits. In case of the unfortunate death of the insured, the family receives the decided sum assured. On the other hand, you can also enjoy term insurance tax benefits under section 80C and section 10(10D) as per the Income Tax Act 1961. So, you must explore these benefits as they allow some tax deductions while you compute your annual income. You will have to pay less tax if you show your premium of the term insurance while computing your income. Therefore, you must see how Section 80C and Section 10(10D) works.

Tax Benefits in a Term Insurance Plan

As you can see that there are two Sections in the Tax Rule that allows deductions in tax so you can see them below:-

Tax Advantage under Section 80C

1. This Section offers a maximum deduction of Rs.1.5 Lacs for the investments made by the individual.
2. The investments are ELSS, ULIP, EPF, PPF, repayment of home loans, and Insurance Premium.
3. This section also covers the amount of premium paid for a term insurance plan and it is a maximum of up to Rs.1.5 Lacs.

Terms and Conditions

1. The amount of the yearly premium paid for the term insurance plan must not be more than 10% of the Sum Assured.
2. If the Premium is more than 10% of the Sum Assured then the deduction will be given proportionately.
3. Insurance Policies issued before 31st March 2012 are eligible for a deduction for the premium amount of 20% of the Sum Assured.
4. As per Section 80C and Sun-Section 5, there will be no deductions during taxation if the policy is surrendered or terminated before the completion of 2 years from the date of inception of the policy.

Tax Exemption under Section 10(10D)

According to this section of the Income Tax Act 1961, your Maturity benefit will be tax-free. It simply means that the maturity amount received by the family after the death of the insured will be tax-free. You will receive the full amount at the time of maturity that was decided at the time of inception of the policy. You will not have to pay any taxes or the company will not deduct any taxes from the maturity amount.

The bonuses received at the time of maturity in a term insurance plan are also exempted from tax under Section 10 (10D)

Terms and Conditions

1. This tax benefit will be applicable only if the amount of premium for the term plan is not more than 10% of the Sum Assured.
2. The amount of Sum Assured must be a maximum of 10 times the premium.
3. If the payout from the company exceeds Rs.1 Lac and the Insurer has the Insured’s PAN Card then a TDS will be applied of 1%.
4. TDS is the Tax Deduction at Source.

Conclusion

Well, now you know the Term Insurance Tax Benefits and you can save some extra tax while computing your annual income. On the other hand, the term plans give you a life cover so that your family can live a happy life even if you are not with them.