Term insurance is easily one of the most affordable ways to secure your family’s financial future in case of the unfortunate event of your death. Beyond offering peace of mind, term insurance also provides significant tax benefits, making it a win-win for policyholders. If you're unfamiliar with how to maximize these benefits, this guide will take you through the basics of claiming tax benefits on your term insurance premiums under the Income Tax Act of India.
Tax Benefits on Term Insurance Premiums
In India, term insurance premiums can be considered against tax deductions under Section 80C and Section 10(10D) of the Income Tax Act, of 1961.
1. Deductions Under Section 80C
You can claim a deduction of up to ₹1.5 lakh per financial year on the premiums paid for your term insurance policy. The following conditions apply:
Who Can Claim?
The premium must be paid for a policy in your name, your spouse's name, or your children's name (dependent or independent).
Annual Premium Limit
The annual premium should not exceed 10% of the sum assured for policies issued after April 1, 2012. For policies issued before this date, the limit is 20%.
2. Exemptions Under Section 10(10D)
The maturity or death benefit received by the policyholder or nominee is entirely tax-free under this section. However, for policies issued after April 1, 2012, this exemption applies only if the premium does not exceed 10% of the assured sum in any given year.
3. Deductions Under Section 80D (Optional)
If your term insurance policy comes with a critical illness rider, the additional premium paid for this rider qualifies for tax deduction under Section 80D, with a limit of up to ₹25,000 (₹50,000 for senior citizens).
Steps to Claim Tax Benefits on Term Insurance Premiums
Choose the Right Policy
Opt for a term insurance policy that aligns with your financial goals while ensuring the premium qualifies for deductions under Section 80C and 10(10D).
Keep Accurate Records Ensure you have proper documentation, including:
1. Policy bond or agreement.
2. Premium payment receipts or statements from your insurer.
3. Bank or credit card statements confirming premium payments.
Declare Premiums While Filing Income Tax Returns (ITR)
1. While filing your ITR, declare your term insurance premium under the Section 80C deduction category. If the policy has a critical illness rider, include it under Section 80D.
2. Use Form 16 (if salaried) or compute your taxable income manually (if self-employed) to claim deductions.
Submit Proofs to Your Employer (If Salaried) Submit your insurance premium receipts to your employer during the investment proof submission period (usually January to March) to reduce your TDS liability.
Verify Tax Savings in Form 26AS Check your Form 26AS online to ensure that your deductions have been accurately reflected after filing your ITR.
Practical Tips for Claiming Tax Benefits on Term Insurance Premiums
E-file Your Taxes: Online tax filing platforms simplify the process by automatically calculating deductions when you input your premium details.
Check Eligibility for Riders: Critical illness and disability riders provide additional financial security and tax benefits, but eligibility criteria may differ.
Beware of Lapsed Policies: Ensure timely premium payments, as lapsed policies may disqualify you from claiming deductions.
Conclusion
Investing in a term insurance policy is a prudent financial decision to secure your loved ones' future and reduce your tax liability. By understanding and adhering to the provisions of Sections 80C, 10(10D), and 80D, you can maximise your tax benefits while ensuring comprehensive coverage. Consult a tax advisor for tailored guidance, especially if you have multiple policies or complex financial arrangements.
FAQs on Claiming Tax Benefits on Term Insurance Premiums
Can I claim tax benefits if I pay the premium for my parents' term insurance?
No, tax deductions under Section 80C are applicable only for premiums paid for policies in your name, your spouse’s name, or your children’s name.
Is there a cap on tax benefits for a critical illness rider?
What happens if I miss a premium payment?
Can I claim benefits for multiple term insurance policies?
Is the maturity amount of term insurance taxable?