If you are looking for ways to reduce your income tax burden, then tax saving investments are the ideal choice so that either you get tax deductions or you can get exempted from paying tax. Your taxsaving investments help with your financial planning but also helps in determining how much you have been spending to pay tax. That being said, investing in different types of insurance can help you save tax.
How To Save Tax Through Insurance Plans?
When you invest in insurance, you secure your family for future financial needs, which may be in your presence or absence. Did you know that insurance policies come with tax benefits which vary in the deduction amount based on the policy? The good news is that insurance not just helps secure your financial needsbut also comes with tax benefits. So this two-in-one combo is a must-buy tax saving options. To enjoy the enhanced benefits, it is recommended to invest in various types of insurance. Let’s have a look at each of these insurances that come with tax saving options:
- Term Insurance
As the name suggests, term insurance is an insurance plan for a specified term period, where you are offered a large sum assured at a low premium rate. If the policyholder cannot survive the policy term, the sum assured is payable to their nominee.
The prime most important benefit of an insurance policy is that it provides death benefits to the policyholder’s nominees. The death benefit is the sum assured under a policy mostly paid out after the claim is registered. This, in a way, helps the beneficiaries to carry out their day-to-day expenses.
The tax benefits of term insurance is that the sum received as a death benefit under term insurance is fully exempt from tax under Section 10 (10D) of the Income Tax Act, which means the sum assured in term insurance is tax-free.
Another relatively tax beneficial investment is term insurance with return of premium (TROP). Under this plan, if the insured succeeds in the policy tenure, the premium paid is returned to the policyholder as survival benefits. Even this amount received as a survival benefit is tax-free under Section 10 (10D).
Unit Linked Insurance Plan (ULIP) is a tax saving investments plan that comes with dual benefits of life insurance coverage and market-linked accumulation. In addition, since these plans offer an option to invest in both equity and debts, they have a high chance of giving better returns than other tax saving investment products.
The entire premium you pay for the ULIP policy is deducted from your taxable income up to a limit of Rs.1.5 lakh under Section 80C of the Income Tax Act 1961, subject to the condition that the life cover be at least ten times of annual premium paid.
- Child Plan
Saving your hard-earned money for your child’s better future is what child plans are. These are types of insurance cum investment plans that help the policyholder create a corpus for their child’s future over some time. Child plans can be customized according to the policyholder’s risk appetite.
For instance, if you are in your mid 30’s you can invest in plans with higher exposure to equities. The returns here will be comparatively higher than investing in debt funds. In addition, such plans also act as tax saving investments as the premium paid for a child plan offers tax deductions of up to Rs. 1.5 lakh a year, under Section 80C.
- Health Insurance Plan
To save your hard-earned money from paying tax, you can invest in a health insurance plan. As health insurance plans have become the need of the hour, it is important to buy a health insurance plan based on your financial and health requirements due to increased diseases and rising deaths.
Being another popular option amongst the many tax saving investments, with health insurance, one can gain tax benefits on the premium paid towards the health plan. Under Section 80D of the Income Tax Act, an individual can claim a deduction for up to Rs.25000 on the premium paid towards the health policy.
Not just these, there are several other tax saving investments for beginners such as Sukanya Samriddhi Yojana, bank fixed deposit scheme, investing in Public Provident Fund (PPF), National Pension Scheme (NPS), etc. So, go ahead, choose a tax saving investment that aligns with your distinctive requirements the best!