Many people buy term insurance to protect their families. But did you know it also helps you save thousands in taxes every year? Let's understand how the term insurance tax benefit works and how you can claim it.
What is Section 80C?
Section 80C of the Income Tax Act is a rule that helps you save tax. It's simple - invest money in certain things, and reduce your taxable income.
For example, if you earn 10 lakh rupees yearly and invest 1.5 lakhs under Section 80C, you only pay tax on 8.5 lakhs.
Term insurance premium is one of the investments covered under this section.
How Much Tax Can You Save?
Under Section 80C, you can claim up to 1.5 lakh rupees every year.
Let's see real savings:
If you're in a 30% tax bracket:
● Investment: 1.5 lakh rupees
● Tax saved: 45,000 rupees yearly
If you're in a 20% tax bracket:
● Investment: 1.5 lakh rupees
● Tax saved: 30,000 rupees yearly
If you're in 5% tax bracket:
● Investment: 1.5 lakh rupees
● Tax saved: 7,500 rupees yearly
This is money you save every single year!
What Premiums Can You Claim?
You can claim the term insurance tax benefit on premiums you pay for:
Your own life insurance - The premium you pay for your policy is fully deductible.
Your spouse's insurance - Premium paid for your husband or wife's policy can also be claimed.
Your children's insurance - If you buy insurance for your kids, that premium also counts.
Important: The total of all these premiums should not be more than 1.5 lakhs for tax benefit.
One Important Rule to Remember
There's a limit on how much premium you can claim.
The premium should not be more than 10% of the sum assured (coverage amount) for policies bought after April 1, 2012.
Example:
If you have 1 crore term insurance:
● Maximum premium for tax benefit: 10 lakhs yearly
● But the Section 80C limit is only 1.5 lakhs
● So you can claim the full premium if it's under 1.5 lakhs
For most term insurance policies, premiums are well within this limit. So you don't need to worry.
How to Actually Claim the Benefit
Claiming the term insurance tax benefit is easy. Here's what you do:
Step 1: Get your premium receipt
Your insurance company sends you a receipt after you pay the premium. Keep this safe. You'll need it.
Step 2: Fill out your tax return form
When filing income tax returns, there's a section for deductions. Look for Section 80C.
Step 3: Enter premium details
Put the premium amount you paid in the right column. Add your policy number and insurance company name.
Step 4: Submit proof if asked
Usually, you just need to mention the amount. But keep your receipts ready. The tax department might ask for proof later.
Step 5: Your employer can also help
If you're salaried, tell your employer about your insurance premium. They'll deduct less tax from your salary throughout the year.
Other Things That Count Under Section 80C
Section 80C of the Income Tax Act covers many investments. You can claim a total of 1.5 lakhs from all these combined:
● Term insurance premium
● Public Provident Fund (PPF)
● Employee Provident Fund (EPF)
● Fixed deposits (5 years)
● National Savings Certificate
● Home loan principal repayment
● Children's tuition fees
● ELSS mutual funds
Plan wisely to use the full 1.5 lakh limit.
Smart Planning Tips
Use the full limit
Don't leave Section 80C benefits unused. If your term insurance premium is 15,000 rupees yearly, you still have 1.35 lakhs limit left. Use it for other investments.
Buy for family members too
Premium for spouse and children also counts. This helps you use more of the 1.5 lakh limit.
Plan early in the year
Don't wait till March to pay the premium. Pay early and enjoy tax benefits throughout the year.
Keep digital records
Save premium receipts digitally. Take photos or scan them. This makes filing returns easier.
Who Benefits Most?
Salaried employees
They can inform their employer and reduce TDS every month. No need to wait for a refund.
Self-employed professionals
They can claim a deduction while filing annual returns. Reduces their tax burden significantly.
High-income earners
Those in the 30% tax bracket save the maximum. For them, every deduction counts.
Final Thoughts
Claiming the term insurance tax benefit under Section 80C is not complicated. Just pay your premium on time, keep your receipts, and mention it in your tax returns. Smart people don't just earn money. They also know how to save it legally. Term insurance helps you do both - protect your loved ones and reduce your tax burden.
Remember, the benefit is there for you to use. Don't ignore it. File your returns properly and claim what you deserve. Talk to your tax advisor if you have questions. Make sure you're using all available benefits under Section 80C of the Income Tax Act.
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