Term Insurance Under 80C and 80D

A term plan is a pure risk insurance plan that provides financial support to dependents in case of the policyholder’s demise during the policy term. Term insurance provides insurance coverage at a lower premium rate.

Term insurance offers many benefits, such as various death benefits, options to add riders, disease-specific coverage, and the option of receiving paid premiums back. An important benefit of term plans is their tax-saving component. Term insurance plans allow policyholders to enjoy tax exemptions on the premiums they pay.

Let us understand whether term insurance falls under Section 80C or 80D of the Income Tax Act.

Term Insurance Tax Benefits Under Sections 80C and 80D

Term insurance offers tax benefits under Sections 80C and 80D of the Income Tax Act, 1961. According to this Act, any individual or Hindu Undivided Family (HUF) can avail term insurance benefits to save money. Both sections have the following tax-saving limits:

Eligibility Criteria for Claiming Tax Benefits Under Section 80C

To claim tax benefits under Section 80C, one must be an:

• Individual
• Hindu Undivided Family (HUF)

The policy must have a minimum holding duration of 2 years.

Apart from these, business entities, firms, etc., cannot claim tax deductions under Section 80C.

How to Claim Tax Benefits for Term Insurance Under Section 80C

A term insurance policy offers tax benefits up to ₹1.5 lakh per year under the Income Tax Act, 1961, provided the total premium paid is less than 10% of the total sum assured.

Section 80C offers deductions on instruments like PPF, EPF, ULIP, and ELSS, as well as on payments such as home loan repayments, children’s tuition fees, and term insurance premiums.

Example: How to Get a Tax Rebate Under Section 80C

Suppose Rohan, an IT professional, has an annual package of ₹15 LPA. As per the latest income tax slab, he falls under the 25% tax bracket. Even after other deductions, Rohan still falls under the 25% bracket. A friend suggests purchasing term insurance, which provides financial support in Rohan’s absence and helps him save on taxes.

Rohan purchases term insurance with a ₹5 crore sum assured, paying premiums of ₹1.20 lakh per year. By doing so, Rohan can claim a tax rebate of up to ₹1.20 lakh on his income.

Eligibility Criteria for Claiming Tax Benefits Under Section 80D

To claim tax benefits under Section 80D, one must be an:

• Individual
• Hindu Undivided Family (HUF)

The policy must have a minimum holding duration of two years.

Apart from these, companies, firms, etc., cannot claim tax deductions under Section 80D.

The table below shows the deduction amounts available to individuals and HUF families under various scenarios.

How to Claim Tax Benefits for Term Insurance Under Section 80D

Section 80D of the Income Tax Act, 1961, primarily deals with health insurance policies. However, you can also claim tax benefits under this section for certain health riders opted with a term insurance policy.

Under Section 80D of the Income Tax Act, 1961, you can claim a tax deduction of up to ₹25,000 if you opt for a term plan with health insurance riders like critical illness.

You can claim a deduction of up to ₹50,000 under Section 80D of the Income Tax Act, 1961, if you purchase term insurance with health riders for your parents aged above 60 years.

Example: How to Get a Tax Rebate Under Section 80D

Suppose Aman, a teacher, has an annual package of ₹10 LPA. As per the recent tax slab, he falls under the 15% tax bracket. Aman is a responsible individual who has purchased term insurance with health riders for his family's welfare. As per the rules, he claims a tax deduction of ₹25,000 for himself, his wife, and children, and ₹50,000 for his parents (above 60 years) for the health riders taken with term insurance.

Thus, Aman gets a combined tax deduction of ₹75,000 for the critical illness riders taken with term insurance.

Exclusions Under Sections 80C and 80D of the Income Tax Act

While you now understand the deductions under Sections 80C and 80D, it's important to be aware of the exclusions:

• If the policyholder does not pay the premium regularly, they are not eligible to claim tax deductions.
• If the insurance policy is provided by the employer, the employee is not eligible for tax deductions.
• If premiums are paid in cash, policyholders are not eligible for tax deductions.

Conclusion

Term insurance is one of the most efficient products to financially secure your family in your absence, while also offering additional tax benefits on your hard-earned income. By understanding the tax benefits of term insurance, you can achieve better financial planning and save money.