Investing in tax saving investments builds financial literacy about one’s financial liabilities and income sources at the time of filing returns. It compels investors and policyholders to actively seek tax saving options that can help one avail sizeable deductions or tax exemptions on their gross income which helps them build their personal fund while also fulfilling their duties as a taxpayer. Tax saving is are mostly pursued in a way that allows the investor to build their corpus in regulated and secure spaces, with the guarantee of high return margins. Tax saving today is not limited to investments, but can also be availed through tax saving plans made by insurance providers in a way that can provide multiple solutions[1] in one.
There are certain provisions available under the Income Tax Act, 1961 that allows individuals to turn their insurance and investment plans into income tax saving options. The tax benefits of term insurance and health insurance is one of the most availed deductions by taxpayers today.
Although tax saving is mostly practiced consciously and availed under standard investment plans, life insurance plans as tax saving options have their own taxation rebates that make it an interesting insurance instrument for passive investors with low-risk appetites, but who would like to being their investment journey by availing the existing reductions as well.
A life insurance policy can be a useful resource and a lifeboat for families undergoing financial distress in the absence of their primary income earner. Knowing which term insurance is best and investing in it is an imperative choice that should be made by those starting their insurance journey, for the tenures are usually ranging from 25 to 30 years and it can be beneficial to start as early as possible.
They are important tax saving options as well because of their simple premise, which is to protect the policyholder and their dependents from any further emotional or financial distress at a time that they may already be vulnerable due to illness or injury. At times of great inflation in medical and hospitalization costs, the selection of a life insurance policy is a necessity for every individual, but with the added benefit of it being one of many tax saving investments the insurance morphs into an investment as well.
- Insurance Tax Benefits under Section 80C: The premiums paid for a term insurance plan or life insurance plans is exempted from taxation under Section 80C of the Income Tax Act, 1961.
One must note that in order to avail the aforementioned tax benefits, for a plan purchased before March 31st 2012, the premiums paid towards the insurance plan should not exceed 20% of the sum assured by the policy at the time of payout or maturity.
If the policy was purchased after April 1st 2012, the premiums will be taxed if they exceed 10% of the sum assured by the policy at the time of maturity. If the policy was purchased after April 1st 2013, the total tax saving deduction that can be availed is capped at 15% of the sum assured by the policy.
- Insurance Tax Benefits under Section 10 (10D): For a life insurance plan or a term insurance plan the payout sum thus received from the same at the time of maturity is exempted from taxation under Section 10(10D) of the Income Tax Act, 1961.
The tax benefit also applies in the event the sum assured is passed into the beneficiary or left to a nominee. Since this amount is a necessary financial lifeboat for surviving members or dependents, it is exempted from taxation.
However, one must note that in order to avail the aforementioned tax benefits, for a plan purchased before March 31st 2012, only the death benefit thus received is exempted from taxation.
If the policy was purchased before April 1st 2012, the payouts will be taxed if the total premiums paid exceed 20% of the sum assured by the policy at the time of maturity. If the policy was issued after April 1st 2012, the payouts will be taxed if the total premiums paid exceed 10% of the sum assured by the policy at the time of maturity.
- Insurance Tax Benefits under Section 80D:
For health insurance plans, the premiums paid are deductible from the net taxable income earned by the policyholder as per Section 80D of the Income Tax Act, 1961.
One can avail tax deductions up to Rs. 25,000 per year on insurance premium payments. For senior citizens this amount increases to Rs 50,000 for taxpayers over the age of 60, with an additional Rs 5,000 for costs incurred medical tests and check-ups for dependents such as spouses and children.
In the event the taxpayer is maintaining the health insurance premiums for their parents, they can avail a tax deduction of up to Rs 50,000 per year. This deduction under Section 80D of the Income Tax helps one avail reductions for their parents if they are above the age of 60.
Policyholders in the pursuit of tax saving all-in-one policy that comes under vital investments and insures one’s health and well-being can be tedious process, For further assistance, you can reach out to financial advisors from insurance providers such Max Life Insurance and go through their wide range of tax saving plans and identify the insurance policy ideal for your requirements.
