Insurance And Tax Planning}

Insurance and Tax Planning

by

seoeasypolicy

People have been buying life insurance over the years not just for the insurance part of the equation it is the tax benefit as well as investment insurance that catches peoples imagination. Income tax is an expense that you would want to reduce. When you file income tax return, it would help to have options that work towards the tax saving potential of your investments. And life insurance becomes just the right set of tools to save tax.

Life insurance and tax benefit:

It is a known fact that many people take up life insurance to save tax. However, lets face it that is not the primary selling point of life insurance. In fact, life insurance should not even be considered primarily from the perspective of investment insurance, since the very purpose of life insurance is to insure against risks that might put your family and dependants in trouble. Life insurance provides financial security to people who look to secure the future of their family and loved ones.

The tax benefit as well as the investment potential associated with life insurance is essentially incidental. However, the tax benefit that comes with life insurance is significant enough to make material difference to your expenses associated with income tax return.

Tax saving in life insurance:

According to legislation under Section 80C, a sum of Rs. 100,000 is eligible to be exempt from taxable income when it is invested towards premiums in life insurance. And the Section provides for investment in other options as well, as in the case of employee provident fund, public provident fund, equity linked mutual funds, and in National Savings Certificates.

One of the key factors to keep in mind when buying life insurance is tax. Although insurance should not be bought to save tax, the tax savings provided under various Sections of the Indian Income Tax Act, make buying insurance cheaper as well as an efficient investment for long term savings.

With life insurance, any premium paid by the individual towards insurance policies taken in his or her own name, in the name of their spouses, or in the names of any of their children, would be tools for tax saving, as long as the premium paid towards insurance does not exceed 20% of the sum assured.

It may be noted that there are legislative changes that propose a decrease in the limit of exemption to save tax from insurance premium paid to 10% or less of the sum assured. In effect, this would allow for higher amounts of sum assured on premium paid, which should be beneficial to the investor. It would help to keep a tab on changes in legislation with regard to tax plan and its impact on tax saving.

Tax plan and maturity benefits / death claims:

It is not just the premiums towards life insurance that are exempted from income tax. Section 10(10D) of the Income Tax Act postulates that payments made to the insured by the insurer upon maturity of the insurance policy or in the form of payments on death claims would be exempted from income tax, thus proving the worth of insurance as instruments to save tax. However, single premium policies may not be eligible for exemption under the tax plan.

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life insurance

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Article Source:

eArticlesOnline.com}