We are well into the new fiscal year now. While you may have already made all the financial decisions on your list, you may also be looking for other financial instruments to achieve additional tax savings. Or maybe you’re one of those people who put off their tax investments until the last minute. Regardless of the category in which you belong, this new start is crucial for reviewing your tax expenditures and making the necessary corrections for good financial health.
You can do this by first calculating your total taxable income and your tax payable. However, several provisions of the Income Tax Act 1961 allow you to save tax and reduce your tax liability in a completely legal way. Therefore, the next step is to determine whether you have taken full advantage of these provisions in an optimal way. If there is still room to further reduce your tax expenses, you could invest some of your savings in insurance products that will not only help you save on taxes, but also secure your future. Here are the insurance products that should be part of your investment portfolio to save tax:
Term life insurance
Term life insurance policies are among the best investments you can make to secure your future. By opting for a term insurance policy, the policyholder ensures that his family enjoys financial benefits even after his death. While the insurance coverage takes care of family members in the event of the death of the policyholder, these policies also help save tax. In accordance with Section 80C of the Income Tax Act 1961, premiums paid for a term life insurance policy are eligible for tax deduction. The maximum amount a person can save under this section is Rs 1.5 lakh. One can also claim a deduction up to this limit by purchasing a term life insurance policy for one’s parents, spouse and children.
Another important tax benefit of term plans is that the payment received by dependents on the death of the policyholder is absolutely tax free. Some of these term plans also offer the benefit of refunding the entire premium paid if the policyholder survives the term of the policy.
Unit-linked insurance plans
ULIPs, short for Unit-Linked Insurance Plans, are a great way to provide financial security for you and your family because they offer the dual benefits of insurance and investment. Although the insured gets life coverage, he also has the option to invest the rest of the amount in equity and debt segments as per his preference. So by investing in a ULIP, while providing a payout to your family in the event of premature death, you are also building a corpus over time by generating market-related returns, should you outlive the term of the policy. . The best part is that since ULIPs are basically life insurance schemes, the premium you pay is also eligible for deduction up to a limit of Rs 1.5 lakh per annum under Section 80C . Moreover, the amount 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 the event of the death of the policyholder, the payment received by the family is also exempt from tax.
Just like life insurance, having a comprehensive health insurance plan is equally essential to securing one’s future and ensuring that one’s plans are not derailed due to an 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 exceeds the limit of Section 80C Rs 1.5 lakh. Moreover, apart from the deduction of Rs 25,000 on premiums paid for medical insurance for yourself, your dependent children and your spouse, you can claim separate deductions on premiums paid to cover the health of your parents. This has an upper limit of Rs 50,000, if your parents are over 60, bringing the total deduction limit to Rs 75,000.
Like term insurance plans, endowment plans also offer life coverage. However, these policies also have an investment component in which they help the policyholder to save regularly over a specific period of time. In return, the policyholder’s family receives the death benefit if the policyholder dies. However, if the policyholder survives the term of the policy, they receive a lump sum when the policy expires. The annual premium paid to purchase 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 insurance products gives you benefits that go beyond simple income tax savings. You also get insurance coverage, whether for life or health protection, helping you protect your family from unexpected shocks. And in the 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 not only to maximize his tax savings but also to secure his future.
The author is CBO-GI at Policybazaar.com. The opinions expressed are those of the author.