Understanding the Tax Benefits of Term Insurance with Return of Premium (TROP)

When it comes to life insurance, most people focus on one question: “How much cover do I get for the premium I pay?”

But there’s another equally important angle - the tax savings.

If you’re someone who wants the protection of a term plan and the reassurance that your money won’t just disappear if you outlive the policy term, Term Insurance with Return of Premium (TROP) could be the sweet spot. It combines financial safety for your loved ones with the comfort of getting your premiums back^@, and yes, it comes with meaningful tax benefits^% under Indian tax laws. You’re covered for life’s falls, but if nothing happens, your money is intact. For a tax-conscious individual, that’s a compelling combination.

Let’s break down exactly how TROP plans help you save on taxes, compare them with other insurance options, and clarify how the benefits work under the old and new tax regimes.

Section 80C Tax Benefits on Premiums Paid^%

One of the biggest draws of a TROP plan is that the premiums you pay are eligible for tax deductions under Section 80C of the Income Tax Act, 1961. However, it is applicable under the old tax regime only.

Here’s how it works:

• You can claim up to ₹1.5 lakh per financial year for the total of all eligible 80C investments, which includes life insurance premiums. Note that the ₹1.5 lakh limit applies to the total amount of eligible 80C investments across different instruments, including life insurance premiums.
• For TROP policies, as long as the annual premium doesn’t exceed 10% of the sum assured, you qualify for the deduction.

Example:

Suppose you buy a TROP plan with a sum assured of ₹50 lakh and an annual premium of ₹45,000. Since the premium is less than 10% of the sum assured, you can claim a deduction of the entire ₹45,000 under section 80C, under the old tax regime.

This means your policy isn’t just protecting your family; it’s actively reducing your taxable income. And if you’re already investing in PPF, ELSS, or home loan principal repayment, a TROP policy simply adds another solid brick to your tax-saving wall.

Section 10(10D) Tax Exemption on Maturity Benefits

A TROP plan has one standout feature that a pure term plan doesn’t – you get your premiums back at the end of the policy term if you survive it. Under Section 10(10D) of the Income Tax Act, this maturity amount is eligible for tax benefits, subject to certain conditions including:

• The premium-to-sum-assured ratio stays within the prescribed limits (10% for policies issued after April 1, 2012).
• The payout is to the policyholder or nominee and not under certain excluded circumstances.

For instance:

If you’ve paid ₹45,000 a year for 25 years into your TROP, you’d have contributed ₹11.25 lakh in premiums. At maturity, you’d get that full amount back — and under 10(10D), you are eligible for tax benefits.

Comparison of Tax Benefits^%: TROP vs Pure Term vs Traditional Life Insurance

When you’re deciding on a life cover, it’s important to know how each option stands up in terms of both protection and tax efficiency.

The sweet spot of TROP is that it offers the dual advantage of life cover and a tax-benefits on maturity payout, which pure term lacks, and generally has a higher cover-to-premium value compared to traditional endowment or money-back plans.

Tax Benefits in the Old vs the New Tax Regime

The old tax regime is more tax-benefit-friendly for TROP policies because it allows you to claim deductions under Section 80C and exemptions under Section 10(10D).

In the new tax regime:

• You cannot claim 80C deductions for premiums.
• But you still get the 10(10D) exemption on maturity benefits, provided the eligibility criteria are met.

Examples:

Scenario 1 – Old Regime:

• Annual premium: ₹45,000
• 80C deduction: ₹45,000 (saving up to ₹13,500 in 30% slab)
• Maturity payout: Tax-benefit under section10(10D) of IT Act 1961

Scenario 2 – New Regime:

• No 80C deduction on premium
• Maturity payout is still eligible for tax-benefit under Section10(10D) of IT Act 1961

If your total 80C-eligible investments don’t already exceed ₹1.5 lakh, and you’re comfortable with the old regime’s slabs, TROP makes tax sense. If you’re in the new regime, the appeal shifts towards the maturity benefit and protection value.

Final Thoughts: Maximising Tax Savings with TROP

A TROP plan isn’t just about “getting your money back.” It’s about structuring your insurance so it works both ways:

1. During the policy term, you reduce your taxable income with Section 80C deductions.
2. At maturity, you receive a tax-benefit on lump sum under Section 10(10D).

This makes it particularly attractive for:

• Salaried individuals maxing out their 80C limit
• Small business owners looking for disciplined, tax-friendly savings
• Individuals wanting both protection and a guaranteed tax-benefit on payout

When chosen wisely, factoring in your sum assured, premium, and tax regime, a TROP plan can be a strategic pillar of your financial planning.

👉 Explore Bandhan Life iTerm return of premium plan to secure your family and save on taxes. Check your eligibility today.

Frequently Asked Questions

1. What tax sections apply to term insurance with return of premium?

TROP premiums qualify for deductions under Section 80C in the old tax regime and not in the new, and the maturity amount is exempt under Section 10(10D) in both regimes, subject to conditions.

2. Can I claim the TROP premium under the new tax regime?

No. The new tax regime does not allow 80C deductions, but your maturity amount remains eligible for tax-benefit under Section10(10D).

3. What is the tax-saving limit for TROP under Section 80C?

You can claim up to ₹1.5 lakh per year across all 80C investments, including your TROP premiums.

4. Is term insurance eligible for 80D?

Generally, term insurance is not eligible for 80D as this section applies to health insurance premiums, not life insurance.

5. Can I claim both 80C and 80D?

Yes, if you have both life insurance (80C) and health insurance (80D) premiums, you can claim deductions under each section separately, within their respective limits.