Filing taxes while simultaneously looking for ways to cut costs and save money. Medical expenses and fees do not qualify for tax exemption. Have you ever considered purchasing a term insurance policy? Term insurance is a financial instrument that provides its policyholders with tax advantages. The primary reason people buy a term insurance policy plan is because of the term insurance tax benefits.
When it comes to term insurance policies, you may choose from many different possibilities. Individuals can modify their plans using the term insurance calculator to obtain the possible advantages.
A person is eligible for various term insurance tax benefits as per the Income Tax Act.
Term Insurance Tax Advantage:
- Section 10 D: According to the legislation, Section 10, Subsection 10D, the money obtained due to a term insurance policy is not subject to taxation.
- Section 80 C: According to an old tax regime, Section 80C allows the policyholder to claim up to Rs. 1.5 Lakh in premium tax exemptions.
- Section 80 D: This section allows deductions for critical illness insurance premiums up to Rs. 25,000. Senior citizens can claim up to Rs. 50,000 in benefits.
Who is Eligible for Premium Tax Benefits for Term Insurance?
Individuals and Hindu Undivided Family organisations (HUFs) may claim premium tax deductions for term insurance. It can be accomplished by requesting a discount on the paid insurance premium.
Term Insurance Tax Advantages
Term Insurance Less Than 80C: Individuals frequently utilise Section 80C of the Income Tax Act to reduce their taxable income. This clause allows for a maximum deduction of Rs 1.5 million for investments and instruments specified in the IT Act. These instruments, which include PPF, ULIP, and EPF ELSS, are accounted for alongside mortgage payments, children’s coaching tuition, insurance premiums, etc. * Currently, there are 2 tax regimes in India – new and old. To get the tax benefit you desire, choose the correct one after consulting an expert. You can opt for a regime change during the next financial year.
The following are the requirements that must be met to qualify for a benefit from term insurance under section 80C:
- The maximum amount of the annual premium payment should be equal to no more than 10 per cent of the total amount insured. When the total amount of the premium is greater than 10%, deductions will be determined accordingly.
- The deduction is only applicable to policies issued before the 31st of March, 2012, and only if the premium does not exceed 20% of the total sum covered. One option is to use a calculator for term insurance that is available online.
- The tax savings provided by Section 80C for term plans do not apply to policies that the policyholder voluntarily cancels or surrenders within the first two years after the date the policy was issued.
Term Insurance Less Than 80D: Section 80D was explicitly designed and reserved for health insurance policies. It allowed for reductions in the value of health insurance policies purchased for one’s self, spouse, children, or parents. For each of the conditions, the limits on deductions vary. The term insurance benefit under section 80D encompasses Critical Illness, Surgical Care, and Hospital Care riders, among others.
Section 80D tax benefits for term insurance are subject to the following conditions:
- The maximum deduction amount is Rs. 25,000
- If the policyholder is a senior citizen, additional benefits of Rs. 25,000 are also available. The tax-benefit value for senior citizens can increase up to Rs 50,000.
GST Exemption on Term Plan: Depending on the plan’s terms, GST fees may apply. The standard GST rate for a basic term plan is 18%. As per Section 80C, the deductions and tax benefits available on the total annual insurance premium paid are exempt from taxation. Section 80C applies when GST is charged on the term insurance premium. For example, if the annual premium totals Rs. 15,000, the GST charged on this amount would be Rs. 2,700. By Section 80C of the IT Act of 1961, the total amount of tax deductions that may be claimed is Rs. 17,700.
Tax Obligation of the Recipient: The policyholder may be required to pay taxes in certain circumstances. Suppose the beneficiary decides not to have the tax deductions provided directly to them. In that case, the tax money is held by the insurance company, where it accumulates interest and is kept even if the recipient does not want it delivered. Under the scrutiny of the information technology department, the total interest portion becomes a tax magnet.
Confused? Use a term insurance calculator to your advantage.
Conclusion: A Term Plan is one of the most common and straightforward future-protecting investments. A long list of tax advantages for term insurance ensures your family’s financial security in times of emergency and helps you save money. It is an inexpensive and trustworthy financial shield for your family.