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Term Insurance Tax Benefits Under Section 80C, 80D and 10D

By Mohammed S Chokhawala

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Updated on: Apr 29th, 2024

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3 min read

Term Insurance is a type of life insurance that offers coverage to the policyholder. However, this coverage is only valid for a particular period. If the policyholder dies during this time frame, then the term insurance-providing company pays the insured money to the beneficiary. 

However, one must know a few terms and conditions before taking term insurance. Apart from this, term insurance also has several tax benefits under the sections 80C, 80D, and 10D. In this article, we will learn about these benefits and how to claim them.

Key Tax Benefits of Term Insurance

According to the Income-tax Act,1961(ITA), several tax benefits are levied on term insurance. People considering term life insurance must learn about these tax benefits and avail of them to make the most out of their insurance policy. These include:

  • Tax Benefit Under Section 80C: Section 80C of the Income Tax Act 1961 states that tax benefits can be availed on premiums paid for the term life insurance policies. Deductions of up to 1.5 Lakh are offered under this section of ITA.
  • Tax Benefit Under Section 10(10D): This section ensures that in case of an unexpected death event of the term insurance policyholder, the entire insurance amount is provided to the nominee of the insurance holder without any tax deductions imposed on it.
  • Tax Benefit Under Section 80D: Policyholders who have opted for a health-related rider (such as Critical Illness, Surgical Care, or Hospital Care Rider) with their term insurance policy, can also avail 80D deductions up to Rs.25,000.

Eligibility to Claim Term Insurance Tax Benefits

The Income Tax Act of 1961 lists specific fixed eligibility criteria for claiming term insurance tax benefits. Any individual seeking term insurance tax benefits must fulfil the following requirements:

  • Any individual seeking to avail of the term insurance tax benefits in India must be an Indian individual or a  Hindu Undivided Family (HUF).
  • Any Indian resident whose income falls under the taxation slab is eligible for a deduction under the term insurance tax benefits.
  • According to Section 80C of the Income Tax Act, senior citizens (60 years and above) whose income falls under the taxation slab are also eligible for tax deductions on term life insurance.
  • Any Indian citizen seeking to claim deductions under the sections of the Income Tax Act must have a term insurance policy registered under their name or the name of their spouse or children.

These are some standard eligibility criteria that one must fulfil to claim tax benefits of term insurance under the ITA.

Term Insurance Tax Benefits Under Section 80C

Amongst the three main sections related to the tax benefits of term insurance under the Income Tax Act of 1961, section 80C states that an individual can avail of tax deductions of up to Rs 1.5 lakhs on premiums of term insurance policies. Here are some critical points for availing tax benefits, as in section 80C:

  • Section 80C states that the policyholder's premium must not exceed 10% of the sum assured. 
  • If the premium paid exceeds more than 10% of the sum assured, a tax deduction is applied proportionally.
  • The section also states that if a policyholder voluntarily surrenders their policy or if the policy is terminated two years from its commencement, there will be no tax benefits offered on the premium payments.

Term Insurance Tax Benefits Under Section 80D

Section 80D allows Hindu Undivided Family (HUF) or individuals to deduct their health insurance premiums from their taxable income. Additionally, certain term plans are eligible for tax benefits under Section 80D. Policyholders who have included a health-related rider (such as Critical Illness, Surgical Care, or Hospital Care Rider) with their term insurance policy can also claim deductions. One of the critical tax benefits of term insurance under Section 80D is:

  • Deductions of up to Rs 25,000 are allowed in each financial year.
  • If you have taken an insurance policy for your parents, you can claim an additional deduction of Rs. 25,000.
  • If your parents are senior citizens, this deduction amount is allowed to be exceeded to Rs 50,000.

Term Insurance Tax Benefits Under Section 10(10D)

Section 10(10D) lists the following tax benefits according to the Income Tax Act 1961:

  • In case of the insurance policyholder's unexpected death, the nominee will receive all the money from the policy exempt from tax.
  • The incentives and surrendering values are also exempted from taxation according to Section 10(10D).

Tax Benefits on Term Insurance Riders

Individuals or Hindu Undivided Family (HUF) can strengthen their insurance policy by specifying a particular illness and, therefore, ensuring some extra amount for it. 

The Income Tax Act of 1961 allows a deduction of Rs 25,000 for individuals and Rs 50,000 for senior citizens, according to Section 80D, on the premium paid for these add-ons or riders that are part of the insurance plan.

Choosing the Right Term Insurance Plan for Maximum Tax Benefits

Here are the points to consider while taking a term insurance plan to gain maximum tax benefits:

  • The term insurance plan you consider must have flexible premium payment options. These premiums are allowed a deduction of up to Rs 1.5 lakh per annum.
  • The sum assured in the insurance policy must be such that it covers all your financial liabilities and future needs.
  • Consider taking insurance policies for a longer tenure since the longer the policy, the more your family members or nominees will gain financial coverage.
  • Opt for additional riders to enhance your insurance plan and increase coverage in case of a particular illness.

Hence, these points can be considered to ensure that you take the best term insurance plan with maximum tax benefits for your future.

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Frequently Asked Questions

Is term insurance claim taxable?

The term insurance claims in India are tax-free in case of an unexpected death of the policyholder as laid down in Section 10(10D) of the Income Tax Act.

Do we get tax benefits on term insurance?

Yes, according to Section 80C, 80D, and Section 10(10D) of the Income Tax Act, there are various tax benefits allowed on term insurance that can be claimed by individuals who have term insurance registered under their name or of their spouse or children.

Is term insurance tax benefit 80C or 80D?

Both sections 80C and 80D provide tax benefits for term insurance as laid down in the Income Tax Act 1961.

How much term insurance can be claimed tax-free?

In case of an unexpected death of the policyholder, the entire insurance amount can be claimed tax-free.

What is section 10(10D) insurance tax benefit?

It states that in case of an unexpected demise of the insurance policyholder, the entire insured amount will be exempted from taxation. This also includes surrendering charges and incentives.

Are death benefits received from a term insurance policy taxable?

No, in case of the policyholder's unexpected death, the insurance amount provided to their nominee is not taxable.

What about riders with critical illness or accidental death benefits? Are they tax-deductible?

According to Section 80D of the Income Tax Act 1961, riders with critical illness or accidental death benefits are allowed a tax deduction of up to Rs 25,000.

About the Author

I'm a chartered accountant, well-versed in the ins and outs of income tax, GST, and keeping the books balanced. Numbers are my thing, I can sift through financial statements and tax codes with the best of them. But there's another side to me – a side that thrives on words, not figures. Read more

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