Everyone wants to earn more money. It can be through investing in assets like equities, mutual funds, real estate, etc. But what if I tell you that you can earn more by saving more?! Surprising isn’t it?
Well, what I’m going to tell you will help save more money every year, not only that you will be getting decent returns.
Tax is an important deduction that happens from our income. Hence it is crucial to saving tax using the right instruments so that we earn more by saving more. Let’s get started with tax saving investment.
Insurance – Tax saving investment?
Insurance is a great way of saving tax. These are a kind of investment that helps the contributor not only with insurance benefits but also with tax benefits.
Usually, any insurance is taken to safeguard your loved ones from unfortunate and uncertain events. These events should not affect your dear ones financially unstable. Although it looks like a piece of great advice, insurance comes at a cost.
You must pay a certain amount monthly or yearly and it is called insurance premiums. If you don’t pay these premiums chances are your policy will lapse you won’t get the benefits.
But these premiums are key to your tax saving, as per the Income Tax Act, you can get tax deduction on insurance premiums under sections 80C and 80D.
Well, these deductions are for self. You can avail more tax deductions if you get a life insurance policy for your parents as well.
A policy surrendered or matured, or in case of death, in accordance with Section 10(10D) of the Income Tax Act, 196, the sum assured along with any bonus (if any) is tax-free for the heirs.
There are various types of insurance you opt for
1. ULIPs
2. Term insurance (with and without moneyback)
3. Medical Insurance
ULIPs
ULIPs, or Unit Linked Insurance Plans, are a type of investment that provides the investor with tax benefits and long-term returns on their premiums.
Unlike other investments, ULIPs come with zero premium allocation charges and zero administration charges, which means you get to keep more of what you pay in premiums and earn more from your investments.
In addition to this, you can also benefit from the taxability of income on the premium paid towards the policy under section 80C of the Income Tax Act. Investment returns are also tax-exempted U/S 10(10D) of the IT Act.
ULIP plans come with a lock-in period of 5 years and offer investors ease of investment by
allowing them to choose from a wide range of fund options to invest in. Investors also have the flexibility of investment as they can make a free switch between funds 3-4 times a year.
Term Insurance
The premium paid towards a term life insurance policy is eligible for tax exemption under section 80C of the Income Tax Act of India. The maximum amount of tax benefits a person can claim in a calendar year is kept at ₹. 1.5 lakh. It is also possible to claim a tax exemption on term life insurance premiums paid for your spouse and children.
From 1st April 2012, only 10% of the sum assured is eligible for tax deductions on term plans. The tax-benefit limit is increased to 15% of the total sum assured if the individual suffers from a disability listed under section 80U or an illness listed under section 80DDB.
In addition to that, the insured will not be entitled to tax benefits if the term insurance policy is surrendered before 2 years have passed from its commencement date, per section 80C (5).
The Income Tax Act allows you to claim tax benefits in addition to the term insurance premiums under section 10(10D). It does not matter whether the beneficiaries receive a death benefit or a maturity amount since they are entirely exempted from tax.
Term insurance is a great way to save not only your taxes but also your family. You can make use of a term policy calculator to calculate the premiums you will have to pay for your policy.
The term policy calculator also helps you in understanding how much sum assured you can get based on the premiums you are willing to pay.
Medical Insurance
The recent pandemic has shown everyone why medical insurance is important for everyone. Medical insurance is a good investment for tax-saving purposes. You can avail of the tax benefits by taking a policy under your parents and spouse as well.
Section 80D of the income tax code allows you to claim a tax deduction for medical insurance premiums up to ₹ 25,000 per financial year. You, your spouse, and your dependent children are subject to the limit of the premium you pay towards health insurance.
In contrast, if you or your spouse are senior citizens (i.e., 60 and over), the deduction limit goes up to ₹ 50,000. If you are less than 60 years old or older than 60 years old, you are entitled to tax deductions if you are a member of HUF (Hindu United Families).
You also get a deduction under section 80DDB on any of the medical expenses that are incurred for the treatment of specified diseases. While section 80DD helps in availing tax benefits if have a dependent with a disability. You get a benefit of up to ₹ 75000 for disability of 40% and more. If the disability is more than 70% the deduction limit goes up to ₹ 1.25 lakhs.
There is one more provision for getting a tax deduction under section 17 for medical
reimbursement /allowance. The limit for it is ₹ 40000 per year.
Final Words
Tax saving is easy than most feel. The lack of the right information makes tax savings complex. If you are looking for better ways to save your income tax, and don’t mind getting extra benefits then insurance is a good tax saving investment. Also don’t forget to use a term policy calculator to understand the premiums you will pay.
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