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  • Term Life Insurance for Tax Benefits

    Term insurance plans are of great help when it comes to individuals who are looking to save on tax. Any policy holder of a term insurance is eligible to receive tax benefits as per the Income Tax Act 1961. Typically, all term insurance policies offer customers tax deductions under Section 80C of the Income Tax Act, 1961, along with further deductions up to an amount of Rs 1.5 lakhs. Policyholders can also avail of exemptions under Section 10(10)D for receiving any amount as part of maturity benefits from their insurance policy.

    Deductions and Tax Benefits Under Section 80C and 80CCC

    The following are the tax benefits that policyholders can claim under Section 80C

    • Individual assessees as well as HUFs (Hindu Undivided Families) are eligible for tax deductions under this section. For individual assessees, the following persons are eligible to receive tax benefits

      • The individual himself

      • The wife or husband of the individual assessee

      • The individual assessee’s children

    In the case of Hindu Undivided Families, any member who is a part of the family is eligible to receive tax benefits under this section.

    • Tax deductions can be claimed on premium up to 20% of the Sum Assured if the premium amount paid for a policy by the assessee over the course of a financial year is more than 20% of the agreed Sum Assured

    • An assessee can claim tax benefits and deductions if the premium he or she has paid is not more than 10% of the actual Sum Assured, if the policy has been issued to the assessee on or post April 1st 2012

    • For any person with a specific ailment or severe disabilities, tax benefits or deductions can be claimed if if the premium he or she has paid is not more than 10% of the actual Sum Assured, if the policy has been issued to the assessee on or after April 1st 2012

    • Under Section 80CCE, an assessee can claim tax deductions up to a maximum amount of Rs 1.5 lakhs under Sections 80C and 80CCC

    Tax Exemptions Available to Term Insurance Policy Holders

    Policyholders are also eligible to receive tax exemptions under Section 10 (10D). Any amount that the assessee receives from the insurance policy, including bonuses, is exempt from tax. There are certain circumstances however, under which this particular rule cannot be applied in the case of any of the following:

    • Any sum received by the assessee under Section 80DD(3)

    • Any sum or amount received by the assessee via a Keyman Insurance Policy

    • If the assessee has received any amount under an insurance plan which was issued to him or her on April 1st 2003 or any time later, with the exception of death benefits.

    Tax Rules Regarding Death Benefits

    Death benefits received by the policyholder’s nominee are also tax free. However, in the case of any policies that have been issued after the 1st of April 2003, the policyholder will not be able to claim tax benefits under Section 10(10)D if the premium he has paid during the policy term for any of the years is more than 20% of the Sum Assured.

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