How To Save Tax With Life Insurance ?
Updated On May 03, 2021
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How To Save Tax With Life Insurance?
One of the major and significant conditions for ensuring that your loved ones have a financially balanced and comfortable life is life insurance. Even in your absence, the capital gains that come with life insurance help your family create a stable and secure future. In addition, there are income tax incentives on life insurance under Section 80C and 10D of the Income Tax Act. For tax benefits, many Indians buy life insurance.
How Does Life Insurance Work?
Under section 80C of the Income Tax Act, the premium charged for a life insurance policy such as an endowment, whole life, money-back, term insurance, and unit-linked insurance policies (ULIP) for self, spouse, children or a member of the Hindu Undivided Family (HUF) can be claimed as a deduction.
Under Section 80C, premiums charged to a life insurance policy count for a deduction of up to 1.5 lakh, while Section 10(10D) makes maturity income tax-free if the premium is not more than 10% of the amount insured or if the amount insured is at least 10 times the premium. Also, the balance guaranteed to be paid to the candidate in the event of death remains tax-free. However, at maturity, if the programme does not meet the income tax benefit qualification criteria, the income would be taxed at the marginal tax rate.
The premium charged up to the maximum limit of Rs.1,50,000 for life insurance policies is liable for tax deduction and deductions are available if the value of the premium paid in the financial year is 20% of the amount of the policy guaranteed. The tax deductions are available with respect to the value of the premium charged in the financial year, which is 10% of the amount guaranteed.
Under section 80C (5), if the issuer of the insurance policy knowingly surrenders his insurance policy or if the insurance policy is terminated within 2 years of the beginning of the insurance policy, the insured will not receive any premium reimbursement benefits provided under section 80C of the Income Tax Act.
According to Section 10(10D) of the Income Tax Act, 196, the balance guaranteed plus bonus (if any) paid on surrender or maturity of the policy or in the event of the death of the insured is fully tax-free for the recipient.
For the sole purpose of tax saving, it is not at all attractive to go for insurance. If one already has insurance, an exception can be claimed for the premium paid. If the insurance is kept strictly for tax purposes, it would be easier to forfeit the policy and spend the amount elsewhere for a higher profit.
Other Ways of Saving Tax
You can also save tax with the help of the following -
1. Health Insurance
Under Section 80D, premiums charged to insure the wellbeing of self, spouse, and dependent children in any mode other than cash are eligible for a deduction from taxable income for up to 25,000.
2. Education Loan
Under Section 80E, the interest charged on loans taken for higher education shall qualify for a taxable income deduction. The deduction shall be provided for a term not exceeding 8 years or until interest is paid, whichever is the earlier.
3. Charity Donations
The government invites you to make contributions and support the vulnerable and needy. Under Section 80G of the ITA, contributions to the PM relief fund or notified NGOs or political parties will provide you with 100 percent tax deductions.
4. Home Loan
One will get a deduction from taxable house property income under Section 24 of the interest charged on home loans up to '2 lakhs. Also, home buyers can demand an additional deduction of 50,000 from taxable income on home loan interest under section 80EEE for the first time.
5. National Saving Certificate (NSC)
The National Savings Certificate comes with a fixed interest rate and has a five-year term. As a tax saving option, the interest earned on NSC is counted and up to Rs 1.5 lakh can be taken as a rebate under section 80C.
You may also like to read:
- How to Make the Most of Tax Benefits from Life Insurance, Health Insurance and Pension Schemes?
- How to Save Tax Under Section 80C of Income Tax Act?
Disclaimer: This article is issued in the general public interest and meant for general information purposes only. Readers are advised not to rely on the contents of the article as conclusive in nature and should research further or consult an expert in this regard.