Life insurance plan not only provides a Risk cover or Death Benefit in case the life assured dies within the Term plan, but it also provides income Tax Benefit through tax deduction and tax exemption.
Although investment-based life insurance policies are also subjected to various tax reliefs. So, prudent people choose a life insurance plan to ensure a dual advantage of tax saving as well as life cover.
In tax deduction, the amount allotted under this category can be deducted from the total income of an individual â€“ thus, the income tax reduces in similar proportions. In tax exemption, the amount allotted under the category is not kept under the purview of income tax.
While filing an income tax return, a taxpayer must specify his investments, say life insurance policies or health cover plans to ensure he gets the due tax benefit.
Life insurance is a key player in helping individuals to reduce tax and plan the amount of tax needed to be filed. Let us check how it can be done.
Reducing Income Tax Through Tax Deduction
There are various sections under the Income Tax Act that are applicable to life insurance investments. For instance:
- Premiums up to Rs one lakh per year for life insurance plans are subjected to a tax deduction as per Section 80C of the Income Tax Act.
- In case of contribution to Pension funds, the tax deduction will be applicable for contribution up to Rs one lakh per year as per section 80CCC. However, surrender or pension amount is taxable.
- In case you are paying towards an insurance scheme for the maintenance of a disabled dependent, then under Section 80DD you can save tax up to 50, 0000 and in case handicapped dependent is suffering from severe disability, you can save up to Rs 100,000 from taxable income.
Clipping Income Tax Through Tax Exemption
Amount earned are generally subject to income tax. However, in life insurance, many benefits are subjected to tax relief as per various sections under the Income Tax Act.
For instance; Under Section 10(10D) of the Income Tax Act, income from the investment-based insurance plan is also subjected to tax benefit. It means that death benefit, Maturity benefit and ancillary benefits arising from Bonus points will be exempt from tax. Hence the Policyholder would be able to enjoy tax-free returns.
Even though there is tax relief, you may find it difficult to assess the amount of tax you need to pay for a particular year. Online tax calculator helps to calculate the total income tax after-tax deduction and tax exemption.
With an expected return and security in case of unforeseen events, life insurance is a savor for many families. It also helps to save money through many useful tax benefit schemes.