Considering efficient tax planning and utilising all the plausible avenues of tax saving is one of the most effective methods to ensure a well-strategised financial portfolio. It reduces the tax burden and enhances savings. To ensure a firm assessment, you can use the digital income tax calculator and ensure your correct tax liability and maintain a firm portfolio.
What is term insurance?
Term insurance is the purest form of life insurance without any savings or investment components. It just offers death benefits to the designated beneficiary or nominee once the insured individual who is the policyholder passes away. The death benefit payout happens either in a lump sum or a fixed sum at regular intervals.
It allows high-life coverage at reasonable rates and allows tax benefits u/s 80C and 10(10D).
Term insurance tax benefit u/s 80C
You can avail of term insurance tax benefits under Section 80C of the IT Act. Here, you are eligible to get tax benefits of up to INR 1.5 lakhs per year for the premiums paid towards term insurance. In this context, you must note that the premium amount is supposed to be less than 10% of the total sum assured amount.
Understanding Section 80D of the IT Act
Although Section 80D principally deals with health insurance plans. However, you can still enjoy term insurance tax benefits under this section.
Nowadays, most term plans offer additional health coverage features. Therefore, you can easily purchase a critical illness rider with your base term policy and claim additional tax deductions under Section 80D.
Claiming tax benefits for term insurance u/s 80D
As 80D of the IT Act chiefly deals with health insurance plans, you need to be extra careful while claiming deduction under this section for your term insurance. You must assess your purchased policy critically to see if there are any health insurance riders associated with it.
In the case of any ambiguity, please clarify it directly from your insurer to ensure the facts. A professional advisor may also guide you along the course.
During tax filing, ensure that all the facts entered are correct. Any mistake jeopardises your tax benefit claim fulfilment.
A term plan is more than a simple life coverage. It allows you to get health insurance benefits too to some extent and strategizes your tax planning.
Tax benefits on term plan riders
To enhance the overall expanse of the base plan, you can add befitting riders to it by paying an additional premium for each rider. However, you must be careful in choosing the riders, because too many additions will eventually lead to unnecessary financial drainage.
When you have a rider(s) to your basic term plan, your insurer either pays the entire sum insured or a part of it on the detection of any particular ailment as per the regulations of the chosen plan.
The premiums paid towards riders are a part of the term plan and are deductible up to INR 25000 for normal people and INR 50000 for senior citizen’s u/s 80D of the IT Act.
Eligibility for claiming tax benefit u/s 80D of the IT Act
80D tax benefits can only be availed by a Hindu Undivided Family, be it for any health insurance premium or any expenses incurred towards any sort of preventive health checkups or care for self, spouse, dependent children and dependent parents.
Payments eligible for 80D tax deductions
The optimal tax deduction limit u/s 80D is INR 25000 for people below 60 years of age. For senior citizens, this limit is INR 50000. In the case of any individual or HUF, the applicable rules include:
- They are eligible to claim tax deductions up to INR 25000 for the premiums paid towards any health plan for themselves, their spouse, and their children.
- In the case of premium paid towards parents’ insurance, which is capped at up to INR 25000 if they are below 60 years of age. In the case of senior citizens, this limit rises to INR 50000.
- For any medical expenditures incurred towards any senior citizen that is not covered under any health plan, a special deduction of up to INR 50000 can be claimed above the standard INR 50000 limit.
- In case the concerned individual, parents, or spouse are over 60 years of age and maintain health coverage, the optimum tax deduction limit availed under 80D is INR 100000.
- HUFs are also eligible to claim a tax deduction u/s 80D for the premiums paid towards health plans towards health plans taken for members of the HUF. The optimum deduction limit is INR 25000 for members upto 60 years and INR 50000 for senior citizen members.
Exclusions under 80D
Some typical exclusions of Section 80D include:
- Irregular premium payment: If the concerned policyholder fails punctual premium payments, they lose the applicable tax benefits.
- Group cover: In case, any organisation or employer is paying the premiums, then these tax deductions under 80D are not eligible.
- Independent children: 80D tax deductions are also inapplicable for financially independent children or any other members of the extended family like relatives.
- Any cash-paid premium does not qualify for this deduction.
Conclusion
Term insurance has more benefits than one. It retains your peace of mind for the long term ensuring future financial security for your family members despite your absence. The best age to buy term insurance is at the beginning of your career, when your responsibilities remain low, and so does the premium payable amount. If purchased early, you can enjoy extensive coverage at lower premiums. As you age, the associated risks and responsibilities rise, which raises the premium amount.
