Filing income tax returns (ITR) is an integral step in every financial year. It involves disclosing your financial information like income, expenditure, investments, tax deductions, and payable taxes to the Income Tax Department of India.
Tax deductions can be essential for you and your family, as they can help you reduce your total payable tax. Did you know that buying online term insurance can benefit you in tax deductions when you file your ITR? Let’s find out more!
Tax Benefits on Term Insurance
A term life insurance offers financial coverage to the nominees in your policy if you meet an untimely demise. During times like the COVID-19 pandemic, buying term insurance online can be beneficial for you. Online term insurance is contactless, convenient, and 15% cheaper than offline ones.
Online term insurance offers two benefits within one plan for your loved ones. Apart from providing financial coverage and stability in your absence, it also provides a few tax benefits that your family can disclose when filing their ITR.
1. Deduction on the Coverage
Under Section 10(10D) of the Income Tax Act of India, the coverage that your family receives as per your policy is exempted from tax. So, if anything happens to you, your family does not have to pay any tax on the assured amount set in the online term insurance policy.
Moreover, if you opt for a return of premium insurance policy, the total premium amount you get back after the maturity age is also free from income tax.
2. Deductions Under Section 80C
Section 80C of the Income Tax Act of India is a section that refers to various investments and incurred expenditures that are exempted from income tax. This section applies to individual taxpayers and Hindu Undivided Families who can claim a maximum tax deduction of Rs. 1.5lakhs from their total taxable income.
However, these deductions are not valid on every investment that you make. It is only valid on a few tax-saving instruments. These tax-saving instruments for ITR include,
- National Pension Scheme
- Public Provident Fund
- Equity Linked Saving Scheme
- Senior Citizen Saving Scheme
Like these options, online term insurance is another tax-saving instrument for ITR. Under section 80C, the premiums that you pay towards your insurance also count toward a tax deduction. But there are a few rules and criteria for this.
- The total annual premium amount should not be more than 10% of the term insurance value. If it goes beyond the 10% mark, your deductions will only be applied proportionally.
- This 10% mark extends to 20% for policies issued before 31st March 2012.
- If you terminate your policy within two years from the start date, you won’t receive any tax benefits on your premium amount.
One example of an online term insurance tax-saving instrument for ITR is Unit Linked Insurance Plan (ULIP).
3. Deductions Under Section 80D
Section 80D also offers tax deductions on insurances, but it is primarily limited to health insurance. Under this section, your premiums undergo a deduction on health insurance for yourself or your spouse, parents, or children.
However, you can also avail of such deductions on your online term insurance if you add health-related riders to your policy. A few of these riders include covers for,
- Critical illness
- Surgical care
- Hospital care
There are a few conditions and criteria for tax deductions under Section 80D as well. They are,
- You can only avail of tax deductions if the amount does not cross Rs.25,000.
- You can get tax deductions of Rs.25,000 on insurance for your parents. However, the limit increases to Rs.50,000 if they are senior citizens.
Getting online term insurance to provide financial backup for your family is a good investment option. Moreover, you can even benefit from tax deductions when you file your ITR if you buy the right insurance policy. It’s a win-win situation on all sides. So make the right choice today!