Tax payments can be undeniably the most feared elements of your financial planning. According to a report, only 27 million of the population out of 1 billion people in India pays the taxes. Typically, the payment of taxes can be dreaded due to the complex filing process. Although you might try to escape tax payments, it can be an inevitable part of your life after you start earning.

Today, there are many tax-saving investments that can allow you to reduce your tax liability. If you are looking forward to saving taxes, you should buy term insurance plans since it can offer tax benefits. Before you purchase a term plan to reduce your tax burden, let’s understand what a term insurance plan is in detail:

What is term insurance plan?

A term plan can be a protection plan, which focuses on the financial well-being of your family. When you purchase a term plan, you can obtain a payout to protect your family financially. Ideally, a term plan can provide your loved ones (nominee) with a monetary payout called death benefit in your absence. Your family can then choose to receive it either every month in installments or annually.

Apart from financial security, you can receive tax exemptions under Section 80C and Section 10(10D) of the Income Tax Act, 1961. As a policyholder, you can purchase term insurance plans to save your taxes after 1st April 2012. While section 80C and Section 10(10D) are applicable on term insurance plans, you can claim a deduction in accordance with Section 80D if you avail additional riders on top of your term plan.

To understand the tax benefits applicable on term plans in detail, let’s take a look below:

  • If you buy a term plan for you, your partner, and your children, the combined amount of your deduction should not be more than Rs. 25,000.
  • If you purchase a term plan for your parent below 60 years, you can be eligible for an extra deduction. However, the maximum limit of deduction should not be more than Rs. 25,000.
  • If your parents are above 60 years, the exemption amount can be relatively higher. After the changes in the 2018 budget, you can claim a deduction up to Rs. 1,00,000.
  • In case you and your parent, both are above 60 years, you can claim a deduction up to Rs. 1,00,000.

Many of you might be unfamiliar with the tax benefits according to Section 80D of term insurance plans. Therefore, let’s get to know Section 80D tax-saving benefits in detail for better clarity:

Section 80D can provide you with a tax deduction of health insurance premium, which can be paid every year for you, your partner, and your children. Under Section 80D, you can be eligible to claim a deduction up to Rs. 25,000. If your life insured member is above 60 years, you can claim a deduction up to Rs. 50,000. The same amount of deduction can be valid if you buy term coverage for your parents. In addition to this, a total deduction of Rs. 5,000 can be allowed on a preventive medical check-up within the overall limit.

Apart from tax benefits, term insurance plans can secure your family financially in the long run in your absence based on the selected tenure of the policy having their life goals protected. If you select a term plan with higher coverage, you can effortlessly reap the tax-saving benefits as well receive a low premium. As a policyholder, you can be eligible to receive the annual tax benefits as well as a tax-free death payout.