Do Money Back Plans Offer Tax Benefits?
Updated On Aug 15, 2022
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Most of us wish to invest for a long time in a standard life insurance policy to build a guaranteed corpus. However, there is an issue if we require money before the term is up. A financial crisis could happen at any time, and we'll need money to deal with it. A standard life insurance policy, on the other hand, is useless if the policy's term hasn't expired. A money-back plan addresses the issue of liquidity during the plan's duration by paying a percentage of the Sum Assured on a regular basis. Let's take a closer look at the plan.
What Are Money Back Insurance Plans?
A money-back policy is one that pays out money at regular periods. This money-back is paid as a percentage of the Sum Assured during the plan's term. Survival Benefits are reimbursable cash payments. These benefits are paid during the plan's term, and the remaining Sum Assured is paid at maturity, along with any vested bonuses. If the insured dies within the plan's term, the whole Sum Assured is paid, regardless of whether or not Survival Benefits have been paid. This is what distinguishes the strategy.
What Are Tax Benefits?
A tax deduction is a reduction in taxable income that is usually the result of expenses, especially those incurred to generate more income. Tax deductions, like exemptions and credits, are a type of tax benefit. In this day and age, having a life and health insurance policy is necessary. To improve its popularity, the government has made it possible to claim tax deductions on the premiums paid for both types of plans. These deductions are usually termed as tax benefits. When choosing a plan, keep in mind the tax implications of purchasing a life insurance policy.
Do Money Back Plans Offer Tax Benefits?
When the life assured under the plan dies during the policy period, the insurance company guarantees to pay a specified sum of money (known as the sum promised) to the insured person's nominee(s). Some plans, such as the money-back policy, payout maturity benefits to the insured individual if they outlive the insurance period. The following are the tax benefits on money-back insurance plans-
- Section 80C
Section 80C of the Income Tax Act of 1961 allows a tax deduction for premiums paid on a life insurance policy, such as money-back policies. A maximum deduction of Rs. 1,50,000 can be claimed. This can be claimed for premiums that are paid for insuring oneself, spouse, dependent children or any member of the Hindu undivided family.
- Section 80CCC
Amount paid towards any annuity plan of Life Insurance Corporation of India or other insurance firms for the purpose of getting a pension can be claimed as a tax deduction under Section 80CCC of the Income Tax Act, 1961. A maximum deduction of Rs. 1,50,000 can be claimed under this clause.
- Section 10(10D)
Section 10D of the Internal Revenue Code exempts you from paying taxes on the amount you receive from a life insurance provider. The amount of the sum assured and any bonus (if any) received on the maturity or surrender of the policy or on the death of the life assured are totally tax exempt in the hands of the receiver under this provision, subject to certain restrictions. Therefore, the amount received through the money-back plan is tax-free under section 10(10D) of the Income Tax Act, 1961.
Take Away
Since the policyholder is eligible for tax benefits under the Income Tax Act 1961, life insurance plans can be excellent tax planning instruments. Life insurance is one of the most successful tax planning instruments, despite the fact that there are several ways to save money. Therefore, make sure to invest in life insurance to get the most out of your money.
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