We all give considerable thought to tax saving. This is an important aspect of financial planning. We’ll give you a quick guide to understanding how to save taxes with insurance products.
- Life Insurance
Life Insurance is an integral part of your financial portfolio. A Life Insurance plan is your family’s financial safety net in your absence.
There are different Life Insurance plans available ranging from term plans, whole life plans and money-back plans to unit-linked plans and endowment plans.
Additional Reading: No-brainers before you take Insurance
Different Life Insurance Plans. One Benefit.
All Life Insurance plans have one major benefit. Tax saving.
You can claim tax deductions on the premium that you pay for your policies.
More about the Tax Benefits of Life Insurance
You can claim deductions up to Rs. 1,50,000 on your Life Insurance policies under Section 80C of the Income Tax Act.
My policy has matured. Do I get a tax deduction?
Yes. Under Section 10D of the Income Tax Act, any sum that you receive from a Life Insurance policy, including any amount through a bonus will be exempt from tax.
- Pension Plans
Pension plans are another type of Life Insurance. Here’s the difference. While the objective of Life Insurance is to protect your family after your demise, pension plans give you and your family an income during your retirement years.
Additional Reading: Tax saving with the National Pension System
How Pension Plans Work
There are two stages in a pension plan. The accumulation stage is when you put aside money while you are earning. Your retirement is when you get to enjoy the withdrawals phase.
Tax Benefits of Pension Plans
- You can enjoy tax benefits on pension plans only in the accumulation phase.
- A maximum deduction of Rs. 1,00,000 can be claimed under Section 80CCC of the Income Tax Act.
Tax Benefits on Maturity of Pension Plans
When your pension plan matures, 1/3rd of the total amount is exempt from tax.
The remaining 2/3rd portion is considered as income and is taxable.
The total amount is exempt from tax on the beneficiary’s death.
- Health Insurance or MediClaim
A Health Insurance policy gives you tax benefits and is a useful tax saving investment option.
Additional Reading: Lesser Known Tax Saving Tips
How is Health Insurance beneficial as a tax saving option?
We’ll make it simple with an example. If you pay Rs. 25,000 as the premium on your own policy and Rs. 30,000 for your senior citizen parent, you can claim a tax benefit of Rs. 25,000 + Rs. 30,000 which is a total amount of Rs. 55,000.
- Senior citizens can claim Rs. 30,000 and others can claim Rs. 25,000 as tax deductions under Section 80D of the Income Tax Act.
- The maturity amount received under a critical illness policy is exempt from tax.
So there you have the various tax saving options with insurance policies.