Ways to save tax with insurance
Life insurance policies not only give you benefits in the long run; they also enable tax benefits for every year
There are many facets of life insurance- protection, savings and investments. Then there are policies to help you achieve your financial goals or to save for your retirement. There are a few plans like endowment and Ulips that can help you earn returns.
The peace of mind with insurance stems from its basic protection orientation which ensures that your dependents do not suffer financially if something were to happen to you. Premiums paid towards life insurance are covered under Section 80C of the Income Tax Act up to a maximum of Rs 1.5 lakh. Likewise, the proceeds in case of death of the policyholder or maturity of the policy are subjected to no taxation under Section 10(10) D. The benefits under Section 80C exist only if the policy has been in force for at least five years, because if the policy is terminated or surrendered within five years, the deductions are added to income and taxed accordingly.
In case of Ulips, the condition to claim tax benefits is that the sum assured has to be at least 10 times the annual premium being paid. For instance, if the sum assured is Rs 15 lakh and the annual premium paid is less than Rs 1.5 lakh, then the entire amount can be claimed as deduction under Section 80C. If the premium is more than 10 per cent, say, Rs 2 lakh for the same sum assured, then the deduction amount is capped at Rs 1 lakh. However, for policies purchased before April 1, 2012, the premium to sum assured should not exceed 20 per cent for the proceeds to be tax free.
There are also tax benefits to be claimed through health riders like critical illness when attached to your base life insurance. Health insurance offers tax benefits under Section 80D, wherein premiums up to Rs 20,000 for senior citizens and Rs 15,000 for others are eligible for tax benefit. Remember that regardless of its nature, life insurance offers tax benefits, a trait that makes it useful to align financial goals and tax savings.
- Premiums paid towards servicing a life insurance policy qualify for tax deductions under Section 80C of the Income Tax Act
- The maximum deduction that can be claimed under Section 80C is Rs 1.5 lakh
- Tax-free proceeds on maturity/death under Section 10(D)
- Premiums towards health riders like critical illness qualify for tax deductions under Section 80D
- Premiums up to Rs 20,000 for senior citizens and Rs 15,000 for others are eligible for tax benefit.