Tax Benefits Under Term Insurance Plans in 2021
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Term insurance plans are a hugely convenient way to secure the financial interests of your family. Your untimely demise might put them in disarray and stress if proper steps are not taken beforehand. This is why it is important to purchase a term insurance plan on time.
A term insurance plan ensures a death benefit if the policyholder passes away within the policy term. The term insurance plan provides cover for the duration of the policy term. You can also add riders to the basic term insurance plan. Riders can be of many uses including critical illnesses, disabilities, accidents etc.
Under the Income Tax Act of India, all term insurance plans are subjected to tax benefits. This is also a major reason it is advisable to buy term insurance plans. There are two major tax benefits applicable to term insurance plans. Knowing about them will help you better plan your finances and knows why term insurance plans are so insisted upon. Read on to find about them.
Also Read:- Top Term Insurance Plans In India
Tax Benefits Under Section 10
Under section 10 (10D) of the Income Tax Act of India, the death benefit payout from a term insurance plan, is fully exempted from tax deductions. There is no maximum amount in this case.
There does exist a condition that if the premium amount is more than 20% of the sum assured, then the maturity amount will be taxable. However, most of the time, the sum assured extends the premium by a large margin which makes this condition quite redundant.
Tax Benefits Under Section 80C
This is the more common type of tax benefit that term insurance policies are subjected to. According to this section, a tax-paying citizen of India, subjected to this Act, is eligible for a tax exemption which is to be applied on the premium of the insurance policy. However, there is an annual limit to this which is Rs. 1.5 Lakhs. All term insurance policies are undertaken before 31st March 2012 are subject to this.
From the 1st of April, 2012, all term insurance plans are subjected to a tax deduction of 10% on the total sum assured. This is increased to 15% if the policyholder suffers from any disability qualifying under u/s 80U or u/s 80DDB.
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Endnotes
Tax benefits are not applicable if the policyholder cancels their term insurance plan before two years are complete from the date of effect of the term insurance policy. Detailed information about your term insurance plan always comes in handy. Be alert to the benefits that are available to you, to make the most use of them.
