tax saving plans
Tax Saving Plans

Tax Saving Plans

Taxes are part of our life, every nation has its tax structure which the citizens have to oblige and pay on a timely basis. We pay tax for commodities and goods we purchase and also pay tax on the income we earn if it falls in the taxable income bracket. Tax planning is also very important if an individual wants to save his or her hard-earned money from getting washed in taxes. The government has made provisions for people to save money on tax by investing in tax-saving investments. This way the government also encourages people to save tax and also get into a habit of savings. Today Life Insurance doesn’t only offer life protection cover/wealth maximisation schemes/child’s future saving plan/retirement savings for the individual and its family but also offer crucial tax benefits on the premiums paid. The proceeds received of life insurance is also exempt from tax.

There are also other investments which fall under section 80 C of the Income Tax Act which help a person to save tax like ULIP (Unit Linked Insurance Plan), PPF (public provident fund), National Savings Certificate (NSC), 5-year bank fixed deposits (FDs), ELSS mutual funds (Equity Linked Savings Schemes and Sukanya Samriddhi Yojana are some of the most known and common investment options that fall under the section 80C of the Income Tax Act. Experts’ are of the opinion that it is best to start planning your tax savings investments early to avoid the last minute in a hasty decision-making process.

Below are details on some of the best tax saving plans and investments that fall under section 80C, 10(10)D and Section 80D of the Income Tax Act,1961.

Tax Saving Through Term Insurance

Term insurance is a life insurance plan that insures the life of the policyholder but does not provide any maturity benefit (unless an investment component is attached to it). Since it offers a large cover against a small premium amount, it is easier on your wallet. Term plans work as a great risk cover for the sole earning members of a family with many dependents. While people do not purchase what they think is the best term insurance plan with the intent of saving on tax, it certainly works efficiently for tax saving. The premium paid as well as the death benefits are exempt under tax regulations.

Section 80C of the Income Tax Act of 1961 lays out that term policyholders are eligible to receive tax benefits and further reductions of up to INR 1.5 lakhs. This amount also includes the premium amount you pay for your spouse and/or children. In addition to saving tax on the premiums, you can also save tax on the returns under Section 10 (10D) of the Income Tax Act, 1961. The maturity amount or death benefit received is completely exempt from tax under the provisions of the section.

We shall take a detailed look at the tax exemption clauses later in the write-up.

Tax Advantages in Term Insurance Plan

As we have already seen, different sections of the Income Tax Act, 1961 enumerate the tax benefits provided for the term insurance plans. Here’s a detailed look at them.

Tax Advantages under Section 80C

Section 80C provides a tax deduction for annual premium paid towards a term insurance policy up to INR 1.5 lakhs. Following are the tax benefits term policyholders can enjoy under this section and the clauses that should be borne in mind.

  • Individual assesses, as well as HUFs or Hindu Undivided Families, are eligible for tax deductions under this section. In the case of individuals assesses, an individual, the wife or husband of the individual, and the individual’s children are eligible for tax benefits.
  • If it’s a HUF, any member of the family becomes eligible for a tax deduction.
  • For policies issued on or after 1st of April 2012, the tax deduction can be sought if the annual premium amount is not higher than 10% of the sum assured. For policies issued before 31st of March 2012, the total premium limit eligibility was up to 20% of the sum assured.
  • In case of the policyholder suffering from a disability or illness, he or she is eligible for a tax deduction when the premium paid is limited to 15% of the sum assured.

Tax Advantages Under Section 10 (10D)

Section 10 (10D) exempts death benefit received under a term insurance policy. However, the following are the situations when the tax exemption clause does not hold good.

  • Amount received under Section 80DD (3) such as deposit made for maintenance, including the medical treatment of a handicapped.
  • If the policy is issued on or after 1st of April, 2003 but before the 31st of March 2012, any amount you receive apart from the death benefit. The exemption is not applicable if the annual premium paid exceeds 20% of the sum assured.
  • For policies issued on or after 1st of April, 2012, tax exemption will not be applicable if the premium amount you pay annually exceeds 10% of the sum assured.

Unit Linked Insurance Plan (ULIP)

ULIPs (Unit Linked Insurance Plans) serve as popular life insurance products in India. These insurance tools offer risk cover in addition to investment options (subject to capital market risks) in qualified investments of the likes of stocks, bonds, mutual funds, etc. for fulfilling your risk appetite. The two components of these single integrated plans – the protection part and the investment part -are capable of being managed in line with your specific choices and needs. Be it for the sake of your child’s education, retirement planning, health reasons, the marriage of your children, or any other future fund-based needs, these unit-linked insurance tools will surely suit your goals. This article throws light on why a ULIP is a great investment option when compared to other investment plans.

ULIP is one of the latest and advanced life insurance plan available in India today. They offer dual benefit of life coverage and investment. ULIP works similar to the mutual fund and SIP type investment plan can be started by an individual to invest in the ULIP scheme. ULIP come with a lock-in period of 5 years which can help build a good amount of corpus and give good returns from market-linked investment. A tax benefit of INR 1.5 lakh can be availed on the insurance premium paid in ULIP. Although there is a condition that life cover amount needs to be 10 times the annual premium to avail tax benefit in ULIP.

Tax saving under Section 80D for Health Insurance Plans

According to the Income-tax Act, 1961 under section 80C, 80D, the government of India offers you to save tax for all the premiums paid for the health insurance for you and your family. You can invest up to INR 1.5 lakhs and reduce your taxable income. Buy Oriental Health Insurance and claim a deduction up to INR 1.5 lakhs for adults and Senior Citizen’s medical insurance premiums. There are certain terms and conditions applicable to the tax deduction declaration.

There are a few things to know before applying for tax deductions from health Insurance plans.

  • Individual policyholders can claim a deduction for premiums paid for health insurance for self, spouse, children, and dependent parents.
  • You can get a tax deduction of up to INR 25,000 rupees can be claimed for health insurance premium paid for self, spouse, and children under the age of 65. For members above the age of 65 years, tax deduction can be claimed for about INR 30,000 rupees.
  • You can claim a Tax deduction up to INR 5,000 rupees for expenses incurred for a preventive health check-up for each year.
  • There are no tax deductions for group insurance policies.
  • GST paid on top of the Oriental health insurance policies cannot be claimed for tax deductions.
  • The maximum tax exemption limit is INR 65,000 rupees.
  • A disabled individual can claim a benefit up to INR 75,000 for adults and INR 1.25 lakhs for serious disability.

Since health is a very important factor in everyone’s life, it needs to be taken care of from day 1. You get all information about Oriental Health Plans on Coverfox.com. So, you need to weigh the pros and cons and then choose the plan which best suits your needs.

Sukanya Samriddhi Yojana (SSY)

Sukanya Samriddhi Yojana is a popular girl child saving scheme which gives an interest of 8.5% annually. Recently the government of India has lowered the minimum amount required to open the scheme from INR 1,000 to INR 250 rupees. The minimum deposit requirement in the Sukanya Samriddhi Yojana has also been lowered from INR 1000 to INR 250. Sukanya Samriddhi Yojana account matures after 21 years the date of inception of the account. The facility for partial withdrawal is allowed once the girl attains the age of 18 years. The contribution of INR 1.5 lakh in the Sukanya Samriddhi Yojana is allowed for deduction under section 80C of the Income Tax Act, 1961. The maturity amount in this scheme is also free from tax.

National Pension System (NPS)

NPS is the most popular voluntary contributed based retirement saving scheme in India. The scheme is open for both salaried and self-employed individuals to get tax benefits. Under the Income Tax section 80 CCD(1), INR 1.5 lakh investment in NPS is eligible to qualify for income tax deduction benefit. However, the maximum total amount of deduction benefit under section 80C, 80CCC, and 80CCD (1) cannot exceed the INR 1.5 lakh.

In addition to this, an investment of up to INR 50,000 is deductible under Income Tax Section 80CCD (1B) of the Income Tax Act,1961. This deduction is over and above the INR 1.5 lakh allowed under section 80 CCD (1).

As per the Income Tax Department and Law the accumulated corpus in NPS at the age of 60 years of the subscriber in the scheme, 40% can be claimed as tax-exempt. The rest will be taxable unless invested in an annuity plan.

NPS also allows withdrawal from the scheme of up to 25% of the corpus for achieving major life stones like children’s higher education or wedding, the building of a first home or medical treatment. The withdrawal is tax exempt.

An individual can exit from NPS before attaining the age of 60 years but for that 80% of the corpus needs to invest in buying an annuity. The 20% withdrawn will be taxed as per the income tax slab of the individual or subscriber.

Public Provident Fund (PPF)

Another popular investment option is the PPF. PPF is government backed and considered one of the safest tax saving options under section 80C. The interest on the PPF gets updated year on year basis; the present rate of interest given in PPF is 8% annually. The maturity period of the PPF account is 15 years and can be extended if required in blocks of 5 years. PPF also has the benefit of partial withdrawal and loan facility. The minimum investment requirement in PPF is INR 500 and the maximum of 12 deposits can be done in a financial year. The withdrawals and the maturity proceeds are exempt from tax.

The minimum investment required in PPF in a financial year is INR 500 and a maximum of 12 deposits can be done in a financial year. The maturity proceeds and withdrawals from PPF are tax-free.

National Savings Certificate (NSC)

The National Saving Certificate or five years NSC currently gives an interest rate of 8%. The minimum investment requirement for NSC is INR 100 and there is no upper limit set for investment in NSC. Up to INR 1.5 lakh of deposit in the NSC qualify for tax deduction under section 80C of the Income Tax Act, 1961.

Tax-saving bank or post office FDs

Bank FDs falling into a special category can give the benefit of tax deduction under section 80C of the Income-tax Act, 1961. The 5-year post office deposit is also eligible under section 80C for tax benefit. The minimum lock-in period for these deposits is 5 years.

Life Insurers