Tax Benefits Under Section 80C and 80D: All You Need to Know About
Updated On Aug 26, 2022
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You can see tax deductions on your pay stub at all times. Our purchases of goods and services are also subject to various taxes. These taxes give the federal government the money it needs to administer the nation. Thankfully, a listing of tax deductions and exemptions is provided by the Income Tax Act. To reduce our tax obligations and increase our savings, we can employ a variety of financial tools.
Benefits of the Income Tax Act under Section 80C
Most people use exclusions and deductions within Section 80C of the Income Tax Act when it comes to tax planning. Individuals may claim deductions under this section for the premiums they pay for insurance plans and other investment instruments, up to a maximum of INR 1,50,000 annually.
Taxpayers may deduct payments made for life insurance as well as contributions to their provident fund, mortgage repayment, child tuition, and other expenses. The following requirements must be met in order to qualify for term insurance tax advantages under this section:
- Just under 10% of the entire sum assured should be your annual premium payment. The reduction is applied proportionally if the premium is greater than 10%. The premium for plans issued prior to 2012 should be lower than 20% of the total assured.
- At least two years must pass since the purchase of your coverage. You cannot deduct expenses under Section 80C of the Income Tax Act if you terminate or discontinue the policy within the first two years.
Benefits of Income Tax Act Under Section 80D
The main focus of Section 80D is the premiums paid to maintain a policy of health insurance. You can benefit from term plan tax advantages under this section because modern term plans also include some health insurance. Per Section 80D of the Income Tax Act, you may deduct an additional INR 25,000 for premiums paid to maintain your term insurance policy. You are eligible for an extra INR 25,000 if you pay the fees for your parents' term insurance plans. If your parents are elderly, the reduction figure increases to INR 50,000.
Tax Advantages on Policy Returns
Initially, term plans didn't offer any rewards upon maturity. The insured would not be compensated if they survived over the policy's expiration date. That has altered over time. A restoration of premium payment and modest maturity benefits are now offered by a number of term insurance policies.
You are eligible to get these refunds if your term plan coverage expires early. Similar to the payoff from a life insurance policy, these maturity benefits are tax-free. The maturity payouts are completely tax-free under Section 10(10D) of the Income Tax Act of 1961.
Tax Breaks for Life Insurance Payments
Term plans and other life insurance policies give the insured's beneficiary financial security. The life insurance policy's payout serves as a financial cushion for the insured's loved ones. The beneficiary must submit a claim if the policyholder suffers any loss during the policy's term. They get paid as soon as the claim is approved and accepted. The great news is that there is no tax due on the dividend.
Take Away
All in all, only one circumstance exists where the beneficiary might be required to pay taxes. The recipient may occasionally postpone the payout for a number of years in order to earn interest on the distribution amount. If that occurs, the interest will be subject to standard taxes.
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