Intrinsic Value: How Buying Life Insurance Or A Life Insurance Policy Can Help You Save Taxes

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Very soon we will be entering the last quarter of fiscal year 2021-22, so now is the time to do the necessary calculations and transactions.

As fiscal year end approaches, people start to worry about their income tax and begin to explore ways to minimize that tax through expenses or savings provided as a “deduction.” Of total taxable income in the Income Tax Act. Most, however, either end up paying more taxes out of ignorance or bad advice from incompetent middlemen, or purchasing such life and health insurance plans that force them to incur such expenses for several years that are not not in accordance with optimal tax saving planning or maximum protection. requirement.

It is important for young people to understand the nuances of good tax planning with insurance products. Very soon we will be entering the last quarter of fiscal year 2021-22, so now is the time to do the necessary calculations and transactions.

Income tax deduction
The premium paid to purchase or maintain a life insurance policy may be claimed as a deduction from taxable income under section 80C, but the amount to be claimed must not exceed 10% of the sum insured during the period. ‘one year. Therefore, care should be taken when taking a policy that the term of the policy is at least 10 years or more. The maximum limit under this article for claiming a deduction in a year is Rs 1,50,000. But the limit includes several other eligible investments such as NSC, PPF, EPF etc. social obligations.

Premiums paid under a unit-linked insurance plan or annuity plans offered by insurers are also eligible for such deductions. The advantage of buying well-planned insurance policies is that the taxpayer does not have to buy a plan every year. The premium paid each year can be claimed as a deduction. The biggest advantage is that not only is financial protection guaranteed to the family, but all proceeds from claims on maturity or death are treated as tax-free in the hands of policyholders or claimants, at the exception of certain minor exclusions.

Premiums paid under a life insurance policy on the life of a spouse or children are eligible for tax relief regardless of the children’s age, employment or marital status. The premium paid for policies on the life of parents is not eligible.

Tax benefits on health insurance
Under section 80D, the premium paid to purchase a health insurance policy for yourself, your spouse and your children is deductible from total income up to a maximum of Rs 25,000 in a fiscal year. An additional deduction of Rs 25,000 is allowed if a premium is paid for a parents’ life health policy. If the parents are over 60, the limit is extended to Rs 50,000.

An individual can claim a deduction under this section up to Rs 75,000 per year. But if the person is himself a senior citizen, the total exemption will be Rs 1,000,000. Premiums paid under life insurance policies that provide critical illness cover etc. are also eligible for deducting Section 80D from the overall limit.

However, the exemption cannot be claimed for premiums paid on behalf of children with their own income or over 25 years of age. This limit does not apply to unemployed and single girls. Those considering purchasing life insurance or a life insurance policy should act now if a maximum deduction for the 2022-2023 assessment year is desired.

The author is the former Managing Director and CEO of SUD Life

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