Exhausted Your 80C Limit? Here’s How You Can Still Get Tax Benefits on Term Insurance
Term insurance is an ideal life insurance product. It can secure your family’s financial future and help you save on tax. If you are not sure about the term insurance meaning, then read on.
A term plan is a type of life insurance policy that provides life cover and financial protection to the policyholder’s family if anything unfortunate happens to him or her. Besides providing monetary security, a term plan offers tax benefits to the policyholder under Section 80C and 80D of the Income Tax Act, 1961.
Many people invest in life insurance and other financial products to save on tax. Due to investing in various instruments, like Public Provident Fund, National Savings Certificate, Post Office Deposits, and Unit-Linked Insurance Plans (ULIPs), the maximum tax exemption limit of INR 1.5 lakh per year under Section 80C gets exhausted. So, it becomes difficult to avail of more tax deductions under Section 80C. However, there is a way by which you can still get more tax benefits.
Due to the ongoing Coronavirus (COVID–19) pandemic, the world came to a standstill. With people locked down in their respective homes, their travel was also restricted. Considering the travel aspect in mind, the Government of India has come up with a Leave Travel Concession (LTC) Scheme for the financial year 2020-21. While filing for Income Tax Returns for this financial year, salaried individuals can claim tax benefits on the purchase of goods or services that had levied a Goods and Services Tax (GST) of 12% or more as a substitute for travel expenses. However, remember that you can claim these exemptions for purchases made between October 12, 2020, and March 31, 2020.
Apart from products and services, life insurance plans are considered under the LTC scheme. If you have exhausted the limit of INR 1.5 lakh per annum under Section 80C, you can claim tax deductions under the LTC scheme. Here, you are eligible for tax exemptions under the LTC scheme only if you had purchased a policy between October 12, 2020, and March 31, 2021. However, you cannot claim any term insurance tax benefits if you are renewing your existing policy. If you want to avail of tax benefits under the LTC scheme, you either have to purchase a new insurance plan or invest in instruments like ULIP or endowment plans.
Benefits available under this plan
While buying a term insurance plan, you have the option to pay the premium as a one-time lump sum amount or regularly until the policy’s maturity. If you have purchased a single premium term insurance plan between October 12, 2020, and March 31, 2021, you can claim deductions on the total premium paid for the term policy or the highest LTC benefit value, whichever is lower. For term insurance plans with a regular premium payment option issued between the stipulated date, you can claim term insurance tax benefits for the premium paid until March 31, 2021. Here, the aggregate premium should be within the LTC limit.
Investing in a term insurance plan is one of the best decisions of life. It will protect the future of your dear ones and help you reduce your tax liability.
As there are different types of term insurance plans offered by various insurers, it can become difficult for you to search for a policy that meets your financial needs. Therefore, it becomes necessary to seek the help of a term insurance plan calculator and compare the tenures, premiums, and sum assured of various policies to finalize the one that suits your requirements