Ways How Life Insurance Plans Help To Save Tax

Life insurance plans arei not only tax savingi options, but also value-packedi investment solution that offeri numerous benefits. Here isi a brief about howi life insurance plans helpi you to save tax.

Generally,i most of us pushi our tax planning investmentsi until the end ofi the financial year thati is in the monthi of March. This mayi lead to some hurriedi investment decisions that mayi not be a goodi investment decision. Investments shouldi be made first toi meet your financial goalsi thereby act as ai tax saving investment.

Prior toi your investment decision, iti is vital to knowi your taxable income andi how much tax youi need to pay accordingi to your income. Thei income of an individuali is divided under threei rates of income tax.i We take an examplei of an individual whosei income is Rs 6i lakh to explain thei above tax slab.

Let’s understandi how

The annual income tilli Rs 2.5 lakh willi not be covered underi any tax. The amounti from Rs 2.5 lakhi to Rs 5 lakhi will be covered underi the tax rate ofi 5%. That is 5%i of Rs 2,50,000 whichi equals to Rs 12,500.i Beyond Rs 5 lakh,i the remaining amount ofi Rs 1 lakh fallsi under the tax ratei of 20% which equalsi to Rs 20,000. So,i the total taxable amounti is Rs 12,500 +i Rs 20,000 + Rs.i 1,300 (4% of incomei tax i.e. cess charges)i = Rs 33,800. Fori income of Rs 10i lakh and above, thei third tax rate appliesi at the rate ofi 30%. Surcharges are chargedi above income of Rsi 50 lakh at 10%i and above Rs 1i crore at 15%. Buti this amount is claimedi under different sections ofi Income Tax, 1961.

Under differenti sections one can claimi tax deductions if thei amount is invested ini tax saving instruments suchi as Employee Provident Fund,i Public Provident Fund (PPF),i Fixed Deposits, National Savingsi Certificate or any tax-savingi mutual funds like Equityi Linked Savings Scheme (ELSS).i Tax saving investments arei not only a wayi to save tax, buti also achieve your financiali goals by being ai part of your investmenti portfolio.

So, how to savei your taxes with insurancei plans?

Section 80(C) – Investmenti in tax saving insurancei policies can help youi claim tax up toi Rs 1,50,000 under thisi section. Your investment cani be in any lifei insurance policy such asi Term Plan, Unit Linkedi Insurance Plan (ULIP), childi plan or savings plan.i For ULIPs, the policyi holders have to holdi the policy for minimumi 5 years while ini case of other policiesi the holding time hasi to be a minimumi of 2 years.

The annuali deduction is capped toi Rs 1.5 lakh peri year, irrespective if thei person gives a premiumi higher than this amount.i So, the claim deductioni is less than ori equal to 10% ofi the sum assured.

Section 10i (10D): Under this sectioni of the Income Taxi Act, 1961 maturity benefiti and death benefit arei also liable for taxi deductions. The annual premiumi can be claimed fori deduction for less thani or equal to 10%i of the sum assured.

Sectioni 80 (D): Critical illnessi policy and health insurancei are also subjected toi deduction up to Rsi 25,000 under Section 80(D)i of the Income Taxi Act, 1961. The limiti for senior citizen isi capped up to Rsi 50,000.

Life insurance is beyondi tax savings

Life insurance noti only helps you savei your taxes, but alsoi gives financial coverage fori your family in casei of your demise. Fewi insurance policies are alsoi designed in a wayi so that they helpi in building wealth alongi with covering life risks.i Choose your life insurancei policy that will helpi you save tax andi build your wealth wisely.