If the policyholder surrenders the traditional plan before two years and the ULIP plan before five years the tax benefit will get reversed.
Two is always better than one, without any doubt! Insurance policies contribute to the dual benefit of meeting your long-term financial objectives and also act as a tax saver! Let’s know how...
Knock! Knock! The email from the HR department about submitting your investment proofs for saving tax must have already arrived in your inbox. If not, it would definitely be on its way. Now, each and every one of you must be thinking about the much-neglected investments and looking for ways by which we can achieve maximum tax saving. What many people often forget is, a simple product like Insurance is one of the ways by which one can achieve all-out tax savings and financial protection together.
In order to get the maximum benefits, one must also be fully aware of the applicable tax rules. While tax rules and limits are dynamic in nature, we must know the exact limits at which an investment qualifies and applicable taxation rules to get the most tax-saving out of an Insurance product.
Let’s understand each section and related insurance products which can help save the maximum amount of taxes from investing in them:Section 80C of the Income Tax Act, 1961
The premiums paid under a Life Insurance Plan is eligible for tax deduction under this section. The maximum deduction one can avail from it is Rs. 1.5 Lakh. The premiums paid for the policies taken for self, spouse or dependent children can also be taken into account. The limit of Rs. 1.5 Lakh is the combined limit of all the life insurance plans which could be Term Insurance Plans, Traditional Plans like Endowment/Money Back or ULIPs.
For availing deductions under this section a few conditions have to be kept in mind like:
The person claiming tax deduction under this section must be a Resident Individual and not a Foreign National.
The deduction is available only to Individuals and Hindu Undivided Families (HUF).
If the life insurance plan has been purchased before April 1, 2012, the premium should not exceed 20% of the sum assured and if the policy is purchased after April 1, 2012, the premium should not exceed 10% of the sum assured to be eligible for tax benefits from this section.
If the policyholder surrenders the traditional plan before two years and the ULIP plan before five years the tax benefit will get reversed.Section 80D of the Income Tax Act, 1961
The premiums paid towards Health Insurance Plans, Mediclaim Plans, Critical Illness Plans, Top-up Plans, Super Top-up Plans and Health Riders attached to Life Insurance plans like Critical Illness Benefit Rider, Hospital Cash Rider, Surgical Care Rider and so on makes an individual qualify for claiming deductions under this section.
Under this section premium paid towards any or all policies taken for self, spouse, dependent children up to Rs 25,000 can be claimed. If the same individual pays premiums for the health insurance taken for the benefit of his parents, he can claim an additional deduction of Rs 25,000. This brings his combined tax deduction under Section 80D to Rs 50,000.
But the benefit does not end here, if parents are senior citizens then the deduction allowed for the premium paid for senior citizen parents is Rs 50,000, thus increasing the total deduction to Rs 75,000. Similarly, if you are a senior citizen and your parents are also senior citizens, then the combined benefit goes up to Rs 1 lakh. Expenses incurred up to Rs 5,000 towards preventive health check-ups can also be included in the total amount while calculating the overall tax deduction amount.In short, deductions under Section 80D can be summarised as below:
Just as Section 80C had some conditions that needed to be complied with, similarly claiming tax deduction under Section 80D also requires compliance of a few conditions like:-Individuals and HUFs can claim deduction under this section.
-The person can be a Resident of this country or an even an NRI or even Foreign Citizen.
-Premiums paid towards Personal Accident Insurance Plans do not qualify for deductions under this section.
-Premiums should have been paid in any mode other than cash i.e. Cheque, Netbanking, Credit Card, ECS, Auto Debit, etc.
-Payment made in cash only towards preventive health check-ups is acceptable for deduction in this section.
An important point to remember here is that for long term health insurance plans premiums have been paid for a policy period of 2 to 3 years in one go. Under such cases, the premium applicable for that year is considered for deduction. The remainder premium will be considered for deduction in the next applicable year.The author is the Director - Life Insurance & Strategic Initiatives, Coverfox.You can now invest in mutual funds with moneycontrol. Download moneycontrol transact app. A dedicated app to explore, research and buy mutual funds.