Here’s how your insurance can offer you tax benefits

Tax-saving and tax-planning are two sides of the same coin of financial planning. That’s why, when you are trying to meet your financial goals, it is important to be smart and understand the right tax saving tools too. And, life insurance offers dual benefits, wherein you get financial protection and maximise tax savings.

So, read on to know how you can save taxes by taking the insurance route.

Types of insurance that helps to save tax:

Life Insurance

Life insurance is the first thing that comes to one’s mind when the word ‘insurance’ is mentioned. And rightly so, it safeguards your family’s future in case you pass away. But besides insuring your family, this type of life insurance offers various tax deductions and exemptions. Under Section 80C of the Income Tax Act, you can claim a deduction of up to Rs 1.5 lakh on your policy premium. Even the proceeds that your loved ones get in your absence or the amount you get at the maturity of the term is tax-free.

The two types of life insurance plans are unit-linked insurance plans (ULIPs) and term insurance plans.

ULIPs: ULIP plans combine insurance with investment. ULIPs also help you save taxes. Sections 80C and 10D of the Income Tax Act ensure that you can avail tax exemptions of up to Rs. 1.5 lakh on your policy premiums. However, you need to hold the plan for more than three years.

Term insurance plan: This type of insurance also provides tax deductions up to Rs 1.5 lakh. Also, the corpus is not taxable when the policy finally matures.

Health Insurance

Health insurance covers you during medical emergencies. Severe or chronic diseases have a reputation of draining your savings and investments. This is when a health insurance stands up for you and helps foot the exorbitant medical bills and hospital charges.

They are not just your friend in need. They also come in handy when you want to save taxes.

You can avail tax deductions up to Rs. 30,000 a year on your health insurance premiums, thanks to Section 80D of the Income Tax Act. This rule applies if you are below the age of 60.

If you have a health insurance for your parents above 60 years of age, the maximum deduction you can claim is up to Rs. 30,000 every year.

Retirement plan

Retirement plans may not directly be linked with insurance but they do help you get tax benefits. The government allows a tax deduction of up to Rs 1 lakh every year. You can do so according to Section 80CCC, which is a sub-section of Section 80C of the Income Tax Act. And when the plan matures, one-third of the corpus remains tax-free.

The final word

Insurance helps cover the sudden costs that impact your life. They also help you when it comes to effectively planning your taxes .

Sources:

HDFC Life

Policy Bazaar

NDTV Profit

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