What kind of tax-saving plan suits your needs?
As soon as the end of financial year approaches we find many in rush to find the best suitable tax saving plan for them. They are looking for some kind of investment which is able to help them to save their funds that they have to hand out as tax. If you google there are many options that you will find suitable for you but you have to check which one is going to match with your priorities.
Among many one such option you will find is the insurance plan. Again, if you explore more, you will find there are different types of insurance plans. Each one helps you to save tax. Nonetheless, which kind suits you depends upon your individual financial profile and requirements. Let us find out which kind will fulfill your financial aspirations in the long run.
Life insurance, as the name suggests, insures your life and provides sum insured amount plus profits, if any, to your family in case of your unfortunate demise. Life insurance is considered as one of the most important types of tax saving plans as it provides you triple benefit of savings, insurance and tax benefit.
You get tax exemption when you pay the premium towards life insurance under section 80C of Income Tax Act 1961. Not just on premium, the return you get on your investment in your life insurance plan is tax free under section 10(10D). In case of unit-linked insurance policy, if you switch from debt to equity or vice-versa, it is tax-free. Moreover the maturity benefit you get is totally tax-free under section 10(10D).
Pension plan and child plan are also considered as tax-saving plans as they both also has the similar tax-saving benefits but in case of pension plan, one-third of the total annuity received at the time of retirement is tax-free under section 10(10A).
The point to be noted here is that the exemption you get from tax under section 80C, 80CC and 80CCE is limited to maximum of Rs 150,000. This means, whatever amount you pay towards your insurance premium, that is life insurance, pension plan, child plan or ULIP, that allows tax exemptions under section 80C, 80CC and 80CCE of Income Tax Act, 1961, should not exceed Rs 1,50,000. If it exceeds tax is to be paid on the balance amount.
Health insurance plan
Health insurance is another important tool that can help you to save tax legally. Tax benefits on health insurance premium paid for self, spouse and children, is limited to Rs 25000 under section 80D. Additional Rs 25000 tax deductions can be claimed if parents are covered. In case the premium is paid for health insurance policy of a senior citizen this amount increases to Rs 30000.
If you want to save tax, your investments should be planned in advance. Taking decisions at the end in jiffy is not the appropriate way. Insurance policies are considered as tax saving plans but that doesn’t mean that they should be bought to only save tax. Think, prioritize, plan and then buy the kind of insurance plan that gels with your long term financial aspirations.