We are well into the new financial year now. While it’s possible that you may have already made all the financial decisions on your list, you may also be looking for more financial instruments to make that extra bit of tax savings. Or you may be among those who postpone their tax-saving investments till the last minute. Irrespective of which category you fall into, this new beginning is crucial to review your tax outgo and make necessary amends for a sound financial health.
You can do that by first calculating your total taxable income and your tax liability. However, there are several provisions under the Income Tax Act, 1961, which allow you to save tax and lower your tax liability in a completely legal way. Hence, the next step is to review whether you have taken full advantage of those provisions optimally. If there is still room to further reduce your tax outgo, you could invest some of your savings in insurance products which not only help you save tax, but also secure your future. Here are the insurance products that should be part of your investment portfolio for tax saving:
Term Life Insurance
Term Life Insurance policies are among the best investments one can make to secure their future. By opting for a Term Insurance Policy, the policyholder ensures that his/her family receives financial benefits even after his/her death. While the insurance cover supports the family members in case of the demise of the policyholder, these policies help one in saving tax as well. As per the Section 80C of the Income Tax Act 1961, premiums paid towards one’s Term Life Insurance policy are eligible for tax deduction. The maximum amount that a person can save under this section is Rs 1.5 lakh. One can also claim deduction up to this limit by buying a term life insurance policy for their parents, spouse and kids.
Another important tax advantage of Term Plans is that the payout received by the dependents on the death of the policyholder is absolutely tax-free. Some of these term plans also come with the benefit of the return of the entire premium paid if the policyholder survives the policy term.
Unit-Linked Insurance Plans
ULIPs, short for Unit-Linked Insurance Plans, are a great way to achieve financial security for yourself and your family because they come with the dual benefit of insurance and investment. While the policyholder gets a life cover, they also get the flexibility to invest the rest of the amount in equity and debt segments, as per their preference. So by investing in a ULIP, while you ensure a payout for your family in case of your untimely demise, you also build a corpus over time by generating market-linked returns, in case you outlive the policy term. The best part is that since ULIPs are essentially life insurance plans, the premium that you pay is also eligible for deduction up to a limit of Rs 1.5 lakh a year under Section 80C. Moreover, the amount that you receive on maturity is also exempt from capital gains tax as long as the annual premium of your policy does not exceed Rs 2.5 lakh. And in case of the death of the policyholder, the payout received by the family is also tax-free.
Health Insurance
Just like life insurance, having a comprehensive Health Insurance Plan is equally vital to secure one’s future and to ensure that their plans are not derailed due to any unforeseen illness. The added benefit is that like life cover, health insurance plans also come with substantial tax benefits, albeit under Section 80D of the Income Tax Act, which is over and above the Section 80C Rs 1.5 lakh limit. Moreover, apart from the Rs 25,000 deduction on the premiums paid for medical insurance for yourself, your dependent children, and spouse, you can claim separate deductions on premiums paid to cover health of your parents. This has an upper limit of Rs 50,000, if your parents are above 60 years old, bringing the total deductions limit to Rs 75,000.
Endowment Plans
Like Term Insurance plans, Endowment Plans also provide life cover. However, these policies also come with an investment component wherein they help the policyholder save regularly over a specific period of time. In return, the family of the policyholder gets the death benefit if the policyholder dies. However, if the policyholder survives the policy term, he/she gets a lump sum amount when the policy matures. The annual premium paid to buy and continue this policy is also eligible for deduction under Section 80C up to a limit of Rs 1.5 lakh.
Investing in most of these tax-saving insurance products provides you benefits beyond just saving income tax. You also get insurance cover, be it for life or for health protection, thus helping you ensure your family is protected from unanticipated shocks. And in case of ULIPs and Endowment plans, these products also help you build a corpus to achieve your life goals. One can make use of these options to not only optimise their tax savings but also to secure their future.
The author is CBO-GI at Policybazaar.com. The 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’);
.
