There’s a golden old quote that says – Don’t blame your income for your inability to save money. Although making mistakes is human nature, any small err in your financial aspects might lead to a major loss soon.
That’s why money-saving is considered one of the most crucial aspects of life for everyone. If you’re looking to save money on tax, there are several exceptions and deductions available for you under the various sections of the Income Tax Act.
In the financial market, there are several types of instruments available for investment that make you qualified for exemptions and deductions on your income tax. Term insurance is one such tax benefit plan that allows you to save tax while securing the future of your family.
However, if you want to make the most out of your tax-saving instrument, you need to know all the possibilities that it offers to help you save money on tax. With that said, let’s take a look at some of the most secret term plan tax benefits that you can avail yourself with ease:
1. Section 10 (10D).
According to Section 10(10D) of the Income Tax Act in India, in the event of the demise of the policy holder, or in the instance where the policy matures, the assured sum offered to the policyholder’s family is completely free from taxation. Moreover, any additional benefits covered under the policy are also tax-free for the dependents.
Here’s a list of specific conditions that make you eligible for tax exemption under the section 10(10D) of the Income Tax Act:
- The term plan tax benefits associated with this section is applicable only if the assured sum is ten times more than the premium paid by the policyholder
- In case the assured sum is more than one lakh rupees, the insurance company requires PAN of the policyholder, and a tax deduction at the source of 1% is applicable on the sum
If you want to enjoy the tax benefits associated with a term plan, you need to purchase one from your desired insurance company and add any required riders along with your base plan to provide more payout to your family after your demise.
2. Section 80D.
Under section 80D of the Income Tax Act, all the premiums paid for term insurance plans are exempt from taxation. Although it doesn’t help you save tax on the payout, it allows you to enjoy the tax benefits indirectly by exempting them from the premiums you pay till your retirement.
The process to avail tax benefits associated with a term insurance plan is extremely straightforward – all you need to do is add riders like surgical care cover, critical illness cover, or anything similar. This allows you to maximize your tax savings while getting an additional security cover for your family.
Moreover, you need to know that the maximum amount that can be availed is INR 25,000. Additionally, if you take an insurance policy for your parents as well, you can get an extra deduction of INR 25,000 for the premiums paid.
3. Section 80C.
Although term insurance tax benefits offered under Section 80C of the Income-tax Act are considered to be one of the most popular and known tax-saving tools in the Indian Financial market, there are some hidden facts associated with it that allow you to enhance your benefits even more.
It allows you to enjoy a tax saving of up to INR 1.5 Lakh for purchasing plans and paying the premiums. Moreover, the upper limit available under this section for tax deduction also applies to tax-saving deposits and investments related to Public Provident Fund (PPF).
To enjoy savings on tax under this section, you also need to make sure that the assured sum is ten times more than the premiums paid for the policy. On top of that, in case the policyholder terminates the policy after the beginning, they won’t receive any tax benefits at all.
4. Life Insurance Payout.
Getting back to the basics, the most general purpose of a term insurance plan is to offer a monetary benefit to your dependents and family members after your demise. The amount of benefit assured is stated under the policy and needs to be paid by the company before the tenure finishes.
After the demise of the policyholder, their family members need to file a claim to receive the payout to support their day-to-day expenses. Considering the importance of this monetary help, the government doesn’t levy any tax on it.
Are You Eligible for Term Insurance Tax Benefits and Deductions?
According to section 80C, the tax benefits offered can be availed by both individual taxpayers and Hindu Undivided Families (HUD) with term insurance. If you pay premiums for your spouse, children, or yourself, you can easily claim deductions in your tax.
Talking about the deductions, they can be claimed only in case the sum assured is not more than ten times the premiums paid under the policy. If you have any specific disability or illness, you can avail of tax deduction even if you haven’t paid 15% or more of your premiums.
Being a policyholder, you can be eligible for both tax exemptions and benefits as stated under section 10 (10D) of the ITA. It states that the payouts received from an insurance policy are eligible to get exempted from taxation, based on varying circumstances.
Excluding the death benefit, any amount received from a term insurance policy company to the policyholder and policy premiums greater than 20% of the assured sum is not eligible for any kind of taxation as well.
When you purchase a term insurance plan, you’re not just making another financial investment, but safeguarding your family against unprecedented times. Moreover, with the additional tax-saving benefits of term insurance policies, they’re certainly a great decision to make in life.
Make sure you always keep the benefits and coverage offered in your desired term insurance plan and choose a good insurance company to gain the several term plan tax benefits stated above under the sections of the Income Tax Act.