Can we claim term insurance in ITR?

Term insurance premiums are highly effective for tax saving, primarily claimed under Section 80C of the Income Tax Act, 1961, when you file your Income Tax Return (ITR). Furthermore, the benefits your family receives, the death benefit, are entirely tax-free under Section 10(10D)**. If you add health-related riders, you can claim additional deductions under Section 80D, making term insurance a triple-tax benefit tool.
This article is your roadmap to understanding every tax advantage a term plan offers, how to claim it correctly in your ITR, and the crucial rules you must follow to keep your family’s financial safety net absolutely tax-free.

The Core Tax Benefits***: Term Insurance’s Triple-Layered Advantage

A term insurance plan offers tax benefits*** at three different stages of its life cycle. Understanding these three pillars is the foundation of smart tax planning.

1. Section 80C: Deductions on Premiums Paid
   

This is the most common and well-known tax benefit. The money you pay towards your term insurance premium every year can be claimed as a deduction from your taxable income.

• What You Claim: The annual premium paid for the basic life cover component of your term insurance policy.
• The Maximum Limit: You can claim a deduction of up to ₹1.5 lakh in a financial year. This limit is an aggregate ceiling that includes all other eligible investments and expenses, such as Public Provident Fund (PPF), Equity Linked Savings Schemes (ELSS), Employees’ Provident Fund (EPF), and principal repayment of a home loan.
• The Golden Rule (The 10% Condition): To claim the full premium amount under 80C, a crucial condition must be met: the annual premium paid for the policy must not exceed 10% of the Sum Assured (life cover amount).
  

   ○ For policies issued before April 1, 2012, this limit was 20% of the Sum Assured.
   ○ If your premium exceeds the 10% limit, you can only claim a deduction equal to 10% of the Sum Assured.
2. Section 80D: Deductions on Health-Related Riders
Many people miss this second layer of savings! While the primary insurance premium goes under Section 80C, if you have enhanced your term plan with specific health-related riders, the premium component dedicated to those riders can be claimed separately under Section 80D.

• What You Claim: Premiums paid specifically for health-focused riders like the Critical Illness Rider, Hospital Cash Rider, or Surgical Care Rider.
• The Maximum Limit: This deduction is in addition to the ₹1.5 lakh limit of Section 80C. The limit varies based on age:
  

   ○ ₹25,000: For premiums paid for yourself, your spouse, and dependent children (if all are below 60 years).
   ○ ₹50,000: If the policy covers a Senior Citizen (60 years or above).
   ○ Additional ₹25,000 or ₹50,000: For premiums paid for your parents (₹25,000 if parents are below 60, and ₹50,000 if they are senior citizens).

• The Maximum Total: By covering yourself, your family, and senior citizen parents, you can potentially claim up to ₹1 lakh under Section 80D.
  

3.Section 10(10D)**: Tax-Free Payouts
This is the ultimate benefit, and it applies at the time of claim settlement.

• What is Exempted: The entire lump sum amount, the death benefit, received by your nominee (beneficiary) upon your passing is completely exempt from income tax.
• The Crucial Distinction: This tax exemption applies to the death benefit irrespective of the premium amount paid, with very few exceptions (like Keyman Insurance). This ensures the financial protection you planned for your family remains fully intact, with zero tax liability for them.
• Note on Term with Return of Premium (TROP): In a TROP plan, the maturity benefit (return of premiums) is also tax-free under this section, provided the annual premium did not exceed the 10% of Sum Assured rule in any policy year. If the premium exceeds this limit, the maturity amount becomes taxable.

Old Tax Regime vs. New Tax Regime: The Crucial Choice

Your ability to claim deductions for term insurance premiums in your ITR hinges entirely on which tax regime you choose.

How This Impacts Your Claim:
1.If You Choose the Old Tax Regime: You get to claim deductions for the premiums paid under both Section 80C and 80D, which directly lowers your total taxable income. This is the regime that rewards tax-saving investments like term insurance.
2.If You Choose the New Tax Regime: You will not be able to claim deductions for the term insurance premiums paid. You benefit from the lower tax slab rates but forgo most tax-saving deductions.
3.The Constant: Regardless of the regime you choose, the death benefit received by your nominee is always tax-exempt under Section 10(10D)**.
The Takeaway: If your total eligible deductions, including term insurance premiums, are substantial, the Old Tax Regime is typically more beneficial for maximising your net savings.

A Step-by-Step Guide to Claiming in Your ITR

The process for claiming your term insurance premium deduction is different for salaried and self-employed individuals.

1. For Salaried Individuals (The Two-Part Process)
   

Salaried individuals generally follow a two-step process:
Step A: Declaration to Your Employer

• When: Usually done at the beginning or middle of the financial year (for projection purposes) and definitely at the end of the financial year (for proof).
• How: You submit the premium payment receipt or the annual premium certificate issued by the insurance provider to your employer's finance or HR department.
• The Form: You declare your investments and expenses, including your term insurance premiums, in Form 12BB.
  

   ○ The 80C amount (base premium) is entered under the relevant section for deductions.
   ○ The 80D amount (health rider premium) is entered under the health insurance section.

• The Result: Your employer considers these deductions when calculating and deducting your Tax Deducted at Source (TDS) every month. Your final TDS certificate (Form 16) will reflect these deductions, leading to a lower tax liability.
  

Step B: Filing Your ITR

• The Form: You typically file ITR-1 (Sahaj) or ITR-2.
• The Action: The deductions are usually pre-filled in your ITR form based on the data reported by your employer (Form 16). You must verify these pre-filled amounts against your official premium receipts.
• The Final Claim: The deduction is claimed in the Schedule VI-A section of your ITR form under the respective fields for Section 80C and Section 80D.
  

2. For Self-Employed Individuals
   

Self-employed individuals must claim the entire deduction when filing their annual ITR.

• The Form: You typically file ITR-3 or ITR-4 (Sugam), depending on your business structure and income.
• The Action: You manually enter the total term insurance premium paid during the financial year into the relevant sections of the ITR form.
  

   ○ Enter the eligible base premium amount in the field for Section 80C.
   ○ Enter the eligible health rider premium amount in the field for Section 80D.

• The Essential Document: Always keep your premium payment receipts from the insurance company ready, as these are your primary proof if the Income Tax Department requests verification.

The Documentation You Must Keep Handy

To ensure a smooth filing process and to be prepared for any inquiry from the tax authorities, you must maintain a dedicated folder for the following documents:
1.Term Insurance Premium Payment Receipt/Certificate: This is your most vital document. The premium certificate, issued by the insurer, clearly shows the total premium paid in the financial year and often breaks down the amount eligible under Section 80C and, if applicable, the health rider premium under Section 80D.
2.The Policy Document: This is necessary to confirm the Sum Assured and verify that your annual premium adheres to the crucial 10% limit rule.
3.Proof of Payment: Bank statements, cancelled cheques, or online payment records confirm that the payment was genuinely made by you.

Common Mistakes to Avoid When Claiming Term Insurance

Even though the rules are straightforward, a few common errors can lead to the reversal of tax benefits*** or complications during scrutiny.

Planning for the Future: Maximising Your Tax and Coverage

Term insurance is not just a tax-saving instrument; it is primarily a protection tool. However, you can use the tax laws to make your coverage more powerful.

1. Buy Adequate Cover Early
   

The premium for term insurance is lowest when you are young. By buying a high Sum Assured early, you automatically ensure that your annual premium remains well within the 10% limit of the Sum Assured, securing the tax-free status of the entire death benefit under Section 10(10D)** for your loved ones. This is the smartest long-term move.
2. Leverage Section 80D with Riders
If you already have separate health insurance, you can still add a Critical Illness or Hospital Cash rider to your term plan. Why?

• Separate Limits: The deduction limits under Section 80C and Section 80D are separate. By using both, you can increase your total deductible amount from the income tax by a substantial amount (up to ₹1.5 lakh under 80C + up to ₹1 lakh under 80D).
• Dual Protection: You get the benefit of life cover and protection against major medical expenses, all while saving maximum tax.
  

3. Review Your Regime Annually
   

If you are currently on the New Tax Regime but are expecting a major life event, like taking a home loan (where the principal repayment is 80C eligible) or significantly increasing your life cover, it's wise to reassess. You can switch back to the Old Tax Regime to claim these larger deductions, including your term insurance premium, as an individual taxpayer.

Conclusion: Term Insurance is Your Tax Ally

When you buy a term insurance policy, you are not just purchasing financial protection; you are unlocking one of the most powerful and consistent tax-saving tools available under the Indian Income Tax Act.
By diligently claiming the premium under Section 80C (and Section 80D for health riders) in your ITR, you reduce your current year's tax burden. More importantly, by adhering to the rules, you guarantee^# that the large financial cushion you created, the death benefit, is passed on to your family entirely tax-free under Section 10(10D)**, securing their future without any loss to taxation.