Life couldn’t have been better for Ragini. She graduated from a top B-school a year earlier and landed a great job at a reputed MNC. Soon, Spreadsheets and never-ending meetings replaced textbooks and exams. Ragini worked hard, and partied harder.
Life was good, until a little chink appeared in this picture-perfect scenario.
Since joining the MNC, Ragini spent a lot. But she neglected to spend on one key aspect: tax saving. Thanks to legitimate excuses like an important presentation, client meets, birthday parties—Ragini hit the snooze button on her financial planning every day.
Ready for the taxman?
By January, Ragini realised her mistake. The taxman had come knocking. Having no tax-saving investments in place, she owed nearly a lakh in taxes that year!
Ragini was stumped. What could she do now?
An older colleague, thankfully, offered her a solution. “Why not get tax-saving insurance?” he said.
“The premium you pay gets deducted from your taxable income. So, from a tax point of view, your income is lower and, thus, your tax. You could even fall into a lower tax bracket as a result,” he explained further. Ragini was thrilled.
Save on taxes with insurance plans
Ragini’s is not a one-off case. Many people may find this story familiar. They may have made a similar mistake. Or they know someone else who has. But smart tax planning can help you save a lot.
To begin with, you must know where you can save:
- Under Section 80C of the Income Tax Act
The money you pay as premium for your life insurance can be deducted from your taxable income. This can reduce your tax payout. You can get a maximum deduction of up to Rs 1.5 lakh in a year.
- Under Section 10D of the Income Tax Act:
Let’s say you make a claim against your life insurance. Then the money the insurer pays will not attract any tax.
- Under Section 80D of the Income Tax Act:
Get tax deductions on medical insurance premium paid for you and your family. You can get a maximum deduction of Rs 25,000 if you are under 60 years of age. In case you pay a premium for your parents who are over 60, then you can get a maximum deduction of Rs 30,000.
Which insurance plans will help you save tax?
Here’s a quick look at some tax-saving options in the life insurance category. Each of these will help you deduct up to Rs.1.5 lakh under Section 80C. Plus, you can avail the tax exemption on insurance claim as under Section 10D as well:
Term Life Insurance
This is the simplest of all life insurance plans. You pay a premium for a certain amount of time. During this ‘term’, your family can get a lump sum amount. This is usually in case of your demise. After this term, the insurance policy expires. These are the cheapest of all life insurance plans. Opt for these if you want to separate your investments and insurance.
Growth Insurance Plans
These are investment-cum-insurance plans. You pay the premium for a certain fixed number of years. Over the next few years, the insurer pays you a guaranteed amount like Rs 1.5 lakh. These plans, thus, help you build wealth and get guaranteed annual payments. Remember, the payouts won’t start right away, though. They begin after a few years and continue until maturity. Money-back insurance plans are similar. They give payouts during the policy term as well as when the insurance policy matures.
Unit-linked Insurance Plans (ULIPs)
Enjoy life cover, tax benefits, and capital appreciation. Invest the investment component of the premium as per your risk appetite. Choose debt, equity, and balanced funds in any proportion that works for you. The key difference is the amount of payout is not guaranteed like in Growth Insurance Plans.
Meanwhile, your medical insurance premiums can help you save a pretty sum. You can claim benefits under Section 80D of the Income Tax Act.
Take medical insurance for yourself. Also get coverage for your spouse, dependent children, and parents. Big tax savings are possible here:
- Save up to Rs.30,000 on premium payments for senior citizens
- Save up to Rs.25,000 for everyone else
- There is a possibility to save Rs.55,000 here—i.e. Rs.30,000 + Rs.25,000
- Plus, the cost of preventive health check-ups is tax-deductible up to Rs 5,000
The bottom line
It is never too late to get your finances on track. Start today. Invest wisely in a tax-saving insurance plan. You get to kill two birds with one stone: Provide financial security for your dear ones, and save on taxes too!