How Life Insurance Can Help You Save Tax & Protect Family
The majority of us, particularly the salaried population, think that the beginning of a fiscal year is always the ideal time to begin tax planning.
During the final quarter of the fiscal year, we frequently make hasty investments without properly planning ahead or comparing numerous tax-saving items and features (January-March period). A great way to plan your taxes is to invest a portion of your overall savings in securities, with insurance policies being one of the best and most popular options among all investment options.
While the basic purpose of life insurance is to give financial protection to its beneficiaries in case of unanticipated catastrophes, it also goes a step above to offer a plethora of life insurance tax benefits which is the frosting on the cake. The amount of life insurance that a person needs will mostly rely on their regular income, spending, financial commitments, and future objectives (such as marriage, schooling, and so on).
A life insurance calculator is a tool you may use online to determine the amount of coverage required based on your needs.
You receive life insurance tax benefits from both health and life insurance plans. Let’s begin by discussing the tax advantages of life insurance.
Gross Total Income is the term used in the Income Tax Act of 1961 to describe the sum of all income from all sources (GTI). The deductions permitted under Chapter VIA must be subtracted from Gross Total Income in order to arrive at taxable income (i.e., under sections 80C to 80U). In other words, total gross income less deductions allowed under sections 80C through 80U equals taxable income.
As an illustration, let’s say the gross annual income is Rs. 8,00,000. In the absence of any deductions, this means that your tax due for the year will be calculated for Rs. 8,00,000, depending on your income category. Consider that you invested Rs. 1,50,000 in life insurance and Rs. 25,000 in health insurance. As a result, you may deduct Rs. 1,50,000 per year under Section 80C and Rs. 25,000 annually under Section 80D. Your taxable income, which is $8,000,000, will be reduced by Rs. 1,75,000 as a result, which will be subtracted from your Gross Total Income. Your tax obligation would then be based on Rs. 6,25,000.
The taxpayer receives insurance coverage and some tax advantages when they pay the premiums for a life insurance policy and a health insurance policy. You can learn about the tax deductions that a taxpayer is eligible for on account of paying life insurance premiums, health insurance premiums, and medical expenses in this section.
Let’s examine the tax advantages of life insurance:
Section 80C – For Premiums Paid
A deduction is allowed under Section 80C for a number of expenses, including life insurance premiums, contributions to the Public Provident Fund and NSC, principal repayment on a mortgage, Post Office Time Deposit Scheme investments, Senior Citizens Savings Scheme contributions, and tuition for young children, among other things. We shall concentrate on the clauses in section 80C that deal with tax deductions for paying life insurance plans premiums. The maximum deduction permitted under Section 80C (together with Sections 80CCC and 80CCD) is Rs. 1,50,000.
According to this clause, the premiums paid for life insurance policies, whether they are regular or ULIPs, are exempt from taxes. If the policy was issued after April 1, 2012, the maximum permissible deduction is Rs. 1.5 lakh, and to qualify, your premiums cannot exceed 10% of the total guaranteed. If the policy was issued prior to April 1, 2012, the premium paid should not exceed 20% of the amount insured. Hence, the premium must be up to one lakh rupees to qualify for an 80C deduction from your taxable income if your policy’s sum promised is ten lakh rupees.
Qualified Taxpayer Persons who have paid or deposited any sum in a specific pension fund that is provided by a life insurance company are eligible for a deduction under Section 80CCC. Hindu Undivided Families, also known as HUFs, are not excluded under Section 80CCC. Both residents and non-residents are subject to these laws.
Chapter 10 (10D)
Under this clause, any benefit received from a life insurance plan is tax-free in the receiver’s hands. The maximum allowed under this clause is unspecified. Tax exemption is available for any sum of money received through a life insurance policy. Benefits include those related to maturation, passing away, and surrender. These exemptions may be requested by individuals (both salaried and non-salaried), Hindu Undivided Families (HUFs), associations, trusts, businesses, groups of people, foreign corporations, and others.
A life insurance calculator is an easy-to-use tool to check the amount of premium you would have to pay.