Term Insurance Income Tax Benefit As Per Section 80C

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.

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.

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). The conditions to avail term insurance tax benefit under Section 80C include:

• 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.

Conclusion

One such situation where the benefit amount may attract tax is when the policyholder chooses not to have the benefit paid out immediately. In this case, the amount is held by the insurance company until paid out, and the amount is paid out after a period of interest accumulation. This accumulated portion of interest is usually liable to taxes.

Also read: Can I Claim Term Insurance Tax Benefits Under Section 80D?

Tax Benefits in Term Insurance Plans

Disclaimer: This article is issued in the general public interest and meant for general information purposes only. Readers are advised not to rely on the contents of the article as conclusive in nature and should research further or consult an expert in this regard.