Monday, 16 April 2018

How Life Insurance Can Be An Effective Tax Planning Tool !!

It is commonly believed that the start of the financial year is the correct time to start tax planning. However, it is the March Quarter when most salaried individuals undertake the process. Most people invest in tax saving products without evaluating their features and understanding their benefits. When comparing different instruments, it is always advisable to choose an option that offers the mutual benefits of wealth protection, flexibility, value appreciations and tax savings.

One of the many tax saving instruments that people come across is Life Insurance. The main objective of a Life Insurance policy is to provide financial protection for an individual in the face of uncertainties; it also acts as a rewarding tax shelter. Some of the preferred Life Insurance products include terms plan, Money back, Whole life Policies and ULIPs (Unit Linked Insurance Plans). Term plans gives you full protection whereas others are mix of Insurance & Investment. However for availing tax benefits all these are treated equally by the Income Tax Department.

Let’s understand tax benefits offered by Life Insurance products:

One can avail a tax benefit by way of deduction towards premium paid on Life Insurance Policies Up to Rs 150,000 under section 80C of the Income tax act 1961. This also includes premium paid by the persons for Life Insurance for his/her Spouse or Child.
Under Section 80CCC if one has taken any pension/annuity plan, he/she is allowed a deduction up to Rs. 1Lakh.On Maturity of the accumulated amount, 2/3rd of the Income gets taxable, while the remaining 1/3rd is tax free.

Life Insurance has an additional EEE (Exempt Exempt Exempt) benefit- the amount one invests, the amount that one’s investment earns and the amount that one finally receives is all exempted from Income Tax.

However before choosing Life Insurance as a tax saving instrument one must keep in mind the following points: A Life Insurance Policy Qualifies for a tax deduction (in case policy is issued after April 1, 2012) only if the premium does not exceed 10 % of sum assured. For policies issued before this date, premium should not have exceeded 20 % of the sum assured.
If the Policy Holder Surrenders the Insurance Policy before Two years & Five years (for traditional & ULIP Policies respectively), the tax deduction will also get reversed.

For More Details Visit: LifeLine Insurance & Financial Expert

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