Every tax payer knows the toll that paying taxes puts on their financial income. To minimize this impact, tax planning is essential and needs to be done wisely. Tax Planning helps you to smartly invest in savings instruments, thereby offering combined benefits of investment growth as well as reduction in the amount of taxes paid to the Government.
Amongst the popular tax savings instruments available in the market, investing in a life insurance policy is considered a good option given the benefit it offers to its beneficiary in the form of - income protection, extensive life cover, reduction in the amount of tax paid. According to the Income Tax Act of 1961, life insurance policy holders are eligible to avail tax benefits.
Several life insurers, such as Max Life Insurance offers life insurance policies as well as specialized tax savings plans. These plans are best for protection, long-term savings, and of course, tax planning. There are two kinds of income tax benefits available through life insurance policies; they are as follows:
This refers to the deductions done towards payment of premium for life insurance policies. Under Section 80C and 80CC of the Income Tax Act, benefits over deductions are available to individual and members of Hindu Undivided Family. Under this section, premium paid during the tenure of the policy are eligible for tax savings. In this case, the policy is required to be availed in the name of the individual, his/her spouse, or children.
Such deduction is allowed only for premium amount that is valued up to a maximum of 10% of the total sum insured of the policy that is issued on or after April 1, 2012. In case the policy is issued before March 31, 2012, then deduction will be allowed on premium payment of up to maximum of 20% of the sum insured amount.
According to Section 80C of the Income Tax Act, such benefit can only be availed on investments made up to Rs. 1,50,000in life insurance products.
Under Section 80CCC, deductions are available only on pension plans – a specialized form of life insurance policies. This section allows deductions for premiums paid towards the scheme for up to the maximum amount of Rs. 1,00,000.
Under Section 80D, income tax benefit is available to an individual or a member of a Hindu Undivided Family. This deduction is also available for policy availed in the name of individual, his/her spouse, and dependent children. Deduction benefit is available on amount of up to Rs. 15,000. An additional deduction benefit of Rs. 15,000 is available if the policy is availed in the name of parents. For parents, if they are senior citizens, higher deduction amount of Rs. 20,000 is permitted.
Under Section 80DD, premium paid for policy availed in the name of disabled dependent is eligible for deduction amount of up to Rs.50,000 each year. In case of severe disability, higher deduction amount of Rs. 75,000 is permissible.
With this benefit, any form of sum received through a life insurance policy is exempted from taxation.
Under Section 10(10D), sum received under a life insurance policy will be exempt from tax. This also includes any amount received through the policy in the form of bonus, or Section 80DD(3), or under Keyman Insurance Policy.
Therefore, a life insurance policy will help you in efficient tax planning. So why not buy a policy for yourself today?