To save on tax, a variety of deductions and exemptions are available under the numerous sections of the ITA (Income Tax Act). Taxpayers can invest in a wide variety of instruments that qualify for these deductions and exemptions. The deadline to invest in tax-saving instruments is March 31st, 2020.
One such tax-saving instrument is term insurance. Apart from availing the term insurance tax benefit, policyholders also get a secure life cover for their family and can remain stress-free in the long run.
A term insurance plan, as the name goes, is an insurance plan for a specified term. It offers you a large sum assured at a relatively low premium rate. If the policyholder passes away during the policy term, the sum assured is payable to their nominee.
Term insurance income tax benefits
Term insurance income tax benefit under Section 80C
-Section 80C of the Income Tax Act is the most popular tool used for tax-saving by individuals. This Section offers a maximum deduction of Rs.1.5 lakh for all the listed investments and instruments put together.
-It includes a number of instruments like PPF, EPF, ULIP, ELSS, and payments like repayment of home loan, children's tuition fees, life insurance premium, etc.
-Under this Section, the premium paid for a term life insurance is also eligible for deduction up to Rs.1.5 lakhs (total of all investments and payments under this Section).
Conditions for term insurance tax benefit under Section 80C
-The yearly premiums paid should not exceed 10% of the sum assured. If the premiums do exceed 10%, deductions will be applied proportionately.
-For policies issued before 31st March 2012, the deduction will be applicable only if the yearly premium does not exceed 20% of the sum assured.
-As per Section 80C(5), in the case of a policy that is voluntarily surrendered or terminated before two years from the beginning of the policy, the policyholder won't receive Section 80C tax benefits on premium payments.
Term insurance tax exemption under Section 10(10D)
-As per Section 10(10D) of the Income Tax Act, the sum assured received on maturity or surrender of a policy or upon the policyholder's death is completely tax-free.
-Bonuses received with such amount are also exempt under Section 10(10D).
Conditions for term insurance tax exemption under Section 10(10D)
-Term plan tax benefit under Section 10(10D) is applicable if the premium is less than 10 percent of the sum assured or the sum assured is at least 10 times the premium.
-If the payout exceeds Rs.1,00,000, and the policyholder's PAN is available to the insurer, a TDS (Tax Deducted at Source) of 1% is applied.
Term insurance tax benefit 80D
-Traditionally, Section is reserved only for health insurance policies. If offers a deduction on health insurance policies taken for self, spouse, children, or parents with different deduction limits under different conditions.
-However, certain term plans can also avail the tax benefits under Section 80D. Policyholders who have opted for a health-related rider (such as Critical Illness, Surgical Care, Hospital Care Rider) with their term insurance policy, can also avail deductions.
Conditions for term insurance benefit 80D
-Deductions under Section 80D can be availed for an amount that doesn't exceed Rs. 25,000.
-If you have taken an insurance policy for your parents, you can avail additional deductions of Rs. 25,000.
-If your parents are senior citizens, the deduction limit goes up to Rs. 50,000.
In order to avail all the tax benefits that come with a term plan,Canara HSBC Oriental Bank of Commerce's iSelect+ Term Plan proves to be a lucrative option. Policyholders can take their pick of the various riders available - Accidental Death Benefit, Accidental Total and Permanent Disability Benefit or even the Child Support Benefit. They can also customize their payout options and choose to receive their payout in the form of a lump sum, a monthly income or a part lump sum-part monthly income. They choose from 3 plan variants, which, each, offer unique benefits like return of premiums, spousal cover and more. Thus, in addition to tax benefits, policyholders can benefit from a whole bunch of advantages by opting for a term plan.