Insurance

Things To Know About Insurance And Tax Savings.

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The tax payable and paid by an Indian citizen with a regular income and the process through which that individual pays the tax is called income tax. The amount of tax is paid on the basis of a percentage of taxation on an individual’s annual income based on the particular income tax slab an individual falls into.

Life insurance and health insurance are common investment processes people tend to bend towards for their tax-saving benefits. However, we must consider the multitude of facets and clauses to these taxation benefits.

Here are a few things to know about insurance policy as a tax-saving investment.

 Features of the 80C (80CCC, 80CCE) Tax Deduction

The most important among this is the Section 80CCC. Section 80CCC of the Income Tax Act of 1961 gives and states deductions of up to Rs. 1.5 lakhs per year for contributions made by an individual towards certain mentioned and specified pension funds that are offered by a life insurance.

Section 80CCC Deduction of the Income Tax Act provides income tax deduction to be asked for by taxpayers who have made payments or deposits for the purchase of any annuity plan of a public insurance organization or from any other insurance companies.

To assert this tax benefit, the individual should have made payments to receive pension from a fund, which is referred to under Section 10 (23AAB). Though, the benefits from the policy either through bonus or interest rose, which are in line to be taxed during the year in which it has been received. Getting tax deduction under Section 80CCC is not restricted to individual residents only, even in certain case scenarios non-resident individuals who have contributed into a pension plan can apply for tax deduction under this section.

If a taxpayer has paid an amount for the continuation of any annuity plan of an insurance company to receive a yearly pension, he or she has the authority to claim a deduction for the sum paid from the gross total income. It must be taken into light that the tax deduction can only be asked for and claimed for the year in which the individual has paid the amount of tax and no other years or time spans.

For example, if an individual makes a one-time payment in a particular financial year, he or she can only claim this deduction on the year for which the payment was made, and not the remaining years when the individual enjoys the tax deduction coverage.

Although, if the taxpayer wants to make regular and consistent payments, on an annual basis, the individual can claim the deduction for every year that the payment made.

●      Tax deduction can only be received by taxpayers who have deposited a certain amount towards buying or continuing an annuity plan from any insurance company.

  • The investment that is made, on which the tax deduction is going to be claimed, must be from the income that is considerable to tax of the concerned individual taxpayer.
  • The final value at which the annuity plan with the insurance company is surrendered, whether in partial or in whole, is also treated as income and accordingly taxed.
  • The maximum deduction that can be claimed during a financial year is Rs. 1,50,000
  • Tax deductions can only be received on amounts of tax paid for the coming year only. In case one-time contributions toward a pension fund are made, the individual can only claim deduction for the year in which the payment has been made.

Features of 80D Deduction

On premiums paid online for an individual’s health policy, the person also gets tax benefits under Section 80D, be the health insurance was taken for the children, spouse, parents, or self. When health insurance is for one self, children or the spouse premiums up to a total of Rs 25,000 per year are eligible as tax deduction.

If a person also takes an additional health insurance policy for their aging parents, that particular individual gets an additional tax benefit of premiums paid up to a limit of Rs 25,000, adding up to Rs 50,000.

  • Careful comparison of insurance policies instead of going for any policy just for the tax benefits is an amateur step and may have negative effects. Reading the fine print of the policy is absolutely essential.
  • Insurance comes with its own set of positive points and incentives. Foremost, an individual’s loved ones get a financial cushion that can help in the worst-case scenarios by giving them a wall to rely on. The policy holder can get income replacement policies that payout the maturity at intervals so that the insurance serves as a revenue link and flow for the family members. Comparison and selection are most important.

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