The end of financial year is soon approaching and so, now is a good time to take stock of your financial decisions so far. It’s always great to get an early start on your annual investment portfolio, especially when it comes to tax saving. However, in case you are yet to sort out your investment decisions, this window is just the ideal opportunity for you to do so.
Usually, investors target wealth creation by investing into products that yield good returns and help maximize their savings. Before the end of the financial year, investors want to get the best out of both. One simple way to achieve this is by investing in insurance-cum-investment products. These products not only ensure gains on investments and tax rebates but also cast a safety net in case of any unfortunate event. So, here’s a quick guide for you to accomplish your financial goals through tax saving.
Saving under Section 80C and 10 (10) D
Let’s first start by exploring the saving options under sections 80 C and 10 (10) D and the products listed under them. Here we have these three options – Term Life Insurance, Unit Linked Insurance Plans and Guaranteed Return Plans.
The term insurance, as it is widely known, is the simplest and purest form of insurance. It not only helps you with tax benefits but also safeguard the future of your dependents. This becomes especially important amid the Covid outbreak. You can get tax exemption of up to Rs 1.5 lakh under Section 80 C and 10 (10) D here. You can save this amount by purchasing a policy for yourself, your parents, spouse or kids.
The second option is ULIP or unit-linked insurance plan. This is considered to be one of the best options to generate tax-free gains. Here, you not only get tax benefits here but also enjoy the flexibility of selecting a policy term between 5 to 30 years. Even if you exit the policy after 5 years or after maturity, you will walk away with a tax-free fund value in hand. Moreover, you can decide to switch between debt and equity as per your preference. Most importantly, the investment is tax-free for an annual premium of up to Rs 2.5 lakh under Section 10 (10)D which means that you should consider at least Rs 2.5 lakh worth of investment in this plan. Needless to say, the life insurance component here definitely makes this a wise investment avenue.
The next option for you here is guaranteed return plan. A popular choice among risk-averse investors, these plans allow you to lock in your money for a long duration while promising better returns. This stands to give the investor a sense of financial security and provide tax benefits as well. They offer both kinds of investment options – income plan or lump sum benefit plan. While the former provides you with recurring income, the latter gives you a lump sum amount. Both of these offer life insurance element which helps the investor create a legacy and save tax under Section 10 (10) D. They also offer a better interest rate than FD which makes them an attractive option.
Benefits under Section 80D
This section helps the investor save tax by investing in health insurance. After the pandemic, the significance of health insurance has taken center-stage. Apart from tax benefits, people have also started seeing health insurance as an essential instrument to be in control of their medical expenses. Health insurance offers tax exemption to the policyholder under section 80D of the Income Tax Act, 1961. Under this, one is allowed to claim a tax deduction of up to Rs 25,000 per financial year for self, spouse and dependent children. The medical insurance premium paid for parents qualifies for an additional deduction of Rs 25,000 if they are not senior citizens. In case, either or both of your parents are senior citizens, this limit increases to Rs 50,000. Effectively, one can get up to Rs 75,000 in tax deductions on purchasing a health insurance policy for self and parents.
With a checklist of what and how much to invest in which instrument, you are equipped to take a financially-informed decision to gain better tax benefits.
The author is CBO-GI at Policybazaar.com. Views expressed are that of the author.
!function(f,b,e,v,n,t,s)
{if(f.fbq)return;n=f.fbq=function(){n.callMethod?
n.callMethod.apply(n,arguments):n.queue.push(arguments)};
if(!f._fbq)f._fbq=n;n.push=n;n.loaded=!0;n.version=’2.0′;
n.queue=[];t=b.createElement(e);t.async=!0;
t.src=v;s=b.getElementsByTagName(e)[0];
s.parentNode.insertBefore(t,s)}(window, document,’script’,
‘https://connect.facebook.net/en_US/fbevents.js’);
fbq(‘init’, ‘444470064056909’);
fbq(‘track’, ‘PageView’);
.
