The tedious task of tax planning is one of the formidable challenges in the life of every hardworking individual in India. You must have heard many people around you, such as your colleagues, talking about filing their income tax returns. Generally, strategic investments can help people in reducing their taxes alongside achieving more savings.
One such investment is a term plan, which can help you earn tax benefits according to Sections 80C, 10 (10D) and 80D of the Income Tax Act, 1961. Around 1.5 crore Indians pay income tax, out of which almost 57% earn less than 25 lakhs INR per annum. At the same time, the Ministry of Finance has recently announced that the net direct tax collections increased by almost 121% from FY 2013-2014 to FY 2021-22. This post can help Indian taxpayers find how a term plan can help them score valuable tax benefits.
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How Can Term Plans Help You Earn Tax Benefits?
The term plan is a preferred tool for obtaining life cover and offers the benefits of financial protection. The primary reason for which people choose a term plan is the advantage of higher life insurance coverage at affordable premium rates.
Term plans have been perceived as an instrument for providing financial stability to the insured in their time of need. Nominees of the sum assured in term plans can use the claims for replacing lost income or paying off debts. However, term plans could also offer the benefits of tax savings, thereby working as a strategic investment. It is important to understand Sections 80C, 80D and 10 (10D) of the Income Tax Act and how they offer tax savings.
Who Can Claim Tax Benefits with Term Plans?
The first thing you need to learn for tax savings with term plans is the eligibility criteria. Any tax-paying individual or a Hindu Undivided Family (UHF) could claim deductions in the form of health insurance premiums. Eligible taxpayers could claim deductions on the preventive health checkup costs incurred for themselves, their partners, dependent parents and children.
Advantages of 80C and 10 (10D) for Tax Savings
Section 80C is one of the most sought-after sections for taxpayers to reduce their taxable income. You can earn a term insurance tax benefit by claiming deductions amounting to a maximum of 150,000 INR annually on the premiums for a term plan. In addition, you must ensure that the premium amount is less than 10% of the sum assured with the term plan.
The next important section of the Income Tax Act that can help you earn tax savings on your term plan is Section 10 (10D). It can ensure tax benefits by excluding the sum assured received upon the demise of the policyholder from tax. There is no cap on the amount of sum assured, which is exempt from tax obligations.
Is Section 80D Useful for Term Plans?
Section 80D has been commonly related to health insurance policies. However, you could also utilise Section 80D for earning benefits with the term plan. How? You can find the option for customising your term plan with additional health coverage with the help of an illness rider. Critical illness also falls under the category of health coverage, and you could claim tax deductions according to Section 80D. Take a look at the following steps for claiming tax benefits on your term plan with caution.
- Check the details of your term plan.
- Find out if you can add any riders for health to customise the policy.
- Ask the insurance provider for doubts regarding health riders.
You can also rely on a professional financial or tax consultant for advice regarding tax benefits with your term plan. The additional premium paid for the riders as a part of term plans could help you claim deductions of up to 50,000 INR for senior citizens. Other citizens can claim tax deductions up to 25,000 INR with Section 80D.
The tax benefits are not applicable in the case of policyholders who don’t pay their premiums regularly. Additionally, Section 80D is not applicable to premiums paid by employers for group health insurance.
Final Thoughts
The opportunity to achieve tax benefits with term plans is a credible pointer for many taxpayers to improve their portfolios. On the other hand, you should know how to use Sections 80C, 80D and 10 (10D) for tax benefits. Therefore, it is important to choose a reliable insurer capable of providing you guidance regarding tax benefits on a term plan.
Taxpayers can claim tax deductions according to Sections 80C and 80D, which can range up to 100,000 INR. On the other hand, Section 10 (10D) is applicable for the death benefit to the nominee. If you want to avail tax benefits on term plans, you must read more about the relevant sections.
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