Most of us are always on the lookout to maximize our savings and minimize our expenses. It can be difficult to achieve, especially considering the rising cost of living and an increase in financial responsibilities. But, thankfully, some investments can act as tax-saving instruments that can reduce the burden on your income.
Term insurance is one of those products that are well-known for its affordability. The term insurance tax benefits are a bonus for people who wish to secure life cover at minimal charges. To understand the extent of tax benefits you can claim, an income tax calculator can help.
While any tax relief can come as a significant relief for tax-paying individuals, the insurance-related tax benefits are especially an appealing advantage. It also encourages taxpayers to secure their life with insurance plans and use their money for systematic savings.
Let’s understand the types of term insurance tax benefits and how they work:
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Deductions Under Term Insurance
Using the income tax calculator, you can estimate the amount of tax relief in a financial year on your investment. There are different types of term insurance tax benefits which can vary depending on the type and sum assured of the policy. You can put in the details of the investment in the income tax calculator to assess your tax liabilities accurately.
Here are some of the tax benefits available with a term plan that you can claim in a financial year:
1. Under Section 80C
Under section 80C of the Income Tax Act, 1961, any person holding a term insurance plan ensures an eligibility for a tax deduction of Rs. 1.5 lakhs per annum. The deduction applies to the premiums paid for the term insurance. The income tax calculator, which is available on most insurer’s website, can give you an idea of the amount of your tax benefits.
Individuals can claim the tax benefits for policies for:
- Yourself, the policy holder
- Spouse of the policyholder
- Your dependent children
Individual policyholders, as well as Hindu Undivided Families (HUFs), can avail the tax deductions under this section. For Hindu Undivided Families, the tax benefits apply to any member of the family.
Some notable points are:
- If your term insurance policy has been issued on or after April 1, 2012, you can claim tax deductions for the premium of up to 10% of the maximum sum assured. Use the tax calculator to get the exact amount in a financial year.
- If your term insurance policy has been issued on or before March 31, 2012, you can claim tax deductions for the premium of up to 20% of the maximum sum assured. Use the tax calculator to get the exact amount in a financial year.
- Individuals suffering from specific disabilities or illnesses can claim the tax benefits if the premium paid for the policy is not 15% of the sum assured or more than that.
- You can claim the tax benefit under this section for other investments such as Public Provident Fund (PPF), fixed-deposits, National Savings Certificate (NSC) and other such tax-saving instruments. Make sure to put in the details of the investment when using the income tax calculator to claim the tax benefit.
2. Under Section 10 (10D)
Apart from tax deductions on the premiums paid for term insurance, you can also avail tax benefits for the returns from the policy. Under Section 10 (10D) of the Income Tax Act, 1961, the death benefit and the maturity benefit offered by term insurance are tax-exempted.
This means that the amount payable as the benefit will not be taxed at all. So, in the unfortunate case of your demise, your beneficiaries can receive the intended sum assured without any tax cuts. When you use the income tax calculator, you can arrive at the expected tax benefits accurately.
3. Under Section 80D
This section is mainly for tax benefits related to health insurance plans. But, you can be eligible for the tax deductions with term insurance under Section 80D of the Income Tax Act, 1961, through riders.
In case you have selected riders to attach to your term insurance plan such as critical illness rider, surgical care rider, hospital care rider., etc., the premiums are eligible for tax benefit. So, by adding a rider to your term insurance, you can enhance the coverage and financial protection and the resulting tax benefits.
With the help of the income tax calculator, you can find out how these investments can amplify your tax savings. In case you are unaware of the tax deductions that are offered with your investments, you may miss out on significant benefits.
So, make sure you use the income tax calculator appropriately to understand the impact of tax benefits and make a sound financial plan, accordingly.