Term insurance plans offer great help when it comes to savings on tax. A term insurance policy holder is entitled to tax benefits according to the provisions contained in the Income Tax Act 1961. Usually, all term insurance policies provide individuals tax deductions under the Section 80C, along with other deductions to a maximum limit of INR 1.5 lakhs. A policyholder could also avail the exemptions u/s 10(10) D of the Income tax Act, 1961 for receiving any amount with respect to maturity benefits from the insurance policy.
Term insurance is considered to be the cheapest mode of life insurance product which is useful for a certain period of time. Term insurance policies are provided by all the major insurance companies such as Aegon Life Insurance and the likes for various periods, say 10, 20, 30 years and even more. Besides, receiving death benefits, in case the insured dies within the term period, is a main advantage of the term insurance. Moreover, it acts as a tax savings tool and certainly can add some extra savings to your portfolio.
Term insurance policies have evolved over the years with various facets of tax exemptions underlying in the Act. The premium paid by a person taking up the term insurance plan would be allowed deduction under the provisions of Section 80C of the Act. It then additional value to the policy for the investors as well as for the individual assessee and HUF (Hindu Undivided Family) assessee. The total deduction which an assessee could claim would be limited to INR 1,50,000 under the Sections 80C, 80CCC of the Income Tax Act, 1961.
Section 80C of the Income Tax Act, 1961 provides benefits to an individual assessee —spouse, children of the individual and HUF assessee. Hence, any payment made by the assessee on account of the term insurance would be allowed as a deduction as per Section 80C. Section 80CCE further states that the maximum amount of deduction that an assessee can claim under Sections 80C and 80CCC will be limited to Rs 1,50,000, which would help you save your hard-earned income.
It ensures that a person will be able to proceed to claim tax exemption for maturity proceeds of the life insurance term insurance policy at the time of an unexpected situation such as a natural calamity.
Exemptions are provided u/s 10(10D) like if the sum received under the life insurance policy, together with the sum allocated as bonus on the policy, it would be tax-free. Though, this rule doesn’t apply to the amounts like sum received u/s 80DD (3) of the Income Tax Act, 1961, or sums received other than the death benefit under any insurance plan that was issued on or after April 1, 2003, and in case the premium payable during the policy term doesn’t exceed 20% of sum assured.
The above-mentioned limit of 20% has been changed to 10% under Section 10 (10D) for insurance policies that are issued on or after April 1, 2012. However, an individual wouldn’t face any d any difficulty in claiming such tax deductions as the premium is very low under roughly all the term insurance policies. Besides, the death benefit is tax-free u/s 10 (10D) of the Income Tax Act,1961.
After studying all crucial elements of a term insurance plan, what an individual can conclude is that it’s a good package of profits that not just offers death benefits to the insured but also functions as a tax-saving tool for leveraging the tax benefits.