Tax Benefits on Insurance and Pension
Life insurance and retirement plans are effective ways of saving taxes.
The tax breaks that are available under our various insurance and pension policies are described below:
1 Our life insurance plans are eligible for deduction under Sec. 80C.
2 Our Pension plans are eligible for a deduction under Sec. 80CCC.
3 Our health insurance plans/riders are eligible for deduction under Sec. 80D.
4 The proceeds or withdrawals of our life insurance policies are exempt under Sec 10(10D), subject to norms prescribed in that section.
INCOME TAX GROSS ANNUAL HOW MUCH TAX CAN YOU SAVE?
SECTION SALARY
Sec. 80C Across All income Slabs. Upto Rs. 33,990 saved on investment of Rs. 1,00,000.
Sec. 80 CCC Across all income slabs. Upto Rs. 33,990 saved on Investment of Rs.1,00,000.
Sec. 80 D* Across all income slabs. Upto Rs. 3,399 saved on Investment of Rs. 10,000.
TOTAL SAVINGS POSSIBLE ** Under Sec. 80C + 80 CCC - Rs. 37,389
Under Sec. 80 D - Rs.3,399 , calculated for a male with gross annual income exceeding Rs. 10,00,000.
Sec. 10 (10)D Under Sec. 10(10D), the benefits you receive are completely tax-free, subject to the conditions laid down therein.
* Applicable to premiums paid for Critical Illness Benefit, Accelerated Sum Assured and Waiver of Premium Benefit.
** These calculations are illustrative and based on our understanding of current tax legislations, which are subject to change.Please contact your tax consultant for exact calculation of your tax liabilities.
Tax Rates for Individuals financial year 2007- 08
Total Income RATE OF TAX
Resident Resident Others Senior Women Citizen below 65 yrs
Upto Rs 1,10,000/- Nil Nil Nil
Above
Rs. 1,10,000/- to Nil Nil 10%
Rs. 1,45,000/-
Above Nil 10% 10%
Rs. 1,45,000/- to
Rs. 1,50,000/-
Above Nil 20% 20%
Rs 1,50,000 to
Rs. 1,95,000/-
Above 20% 20% 20%
Rs . 1,95,000/- to
Rs. 2,50,000/-
Above 30% 30% 30%
Rs. 2,50,000/-
In case where the Total Income exceeds Rs 10,00,000, there would be a surcharge @ 10%.Marginal relief is available to assessee whose income just exceeds Rs. 10,00,000.
Education Cess on Income Tax
Education Cess @ 3% will be payable on the amount of income tax (including surcharge).
Planning investments in insurance instruments has always been an important part of everyone's investing exercise. While it is important for individuals to have some risk cover, it is equally important that they buy insurance keeping both their long-term financial goals and tax planning in mind. Insurance polices are often bought between the January and March quarter as they qualify for tax rebates/exemption under Section 80C and 80D of the Income Tax Act. However, investors should not buy an insurance policy just to save on tax, there should be a well thought-out plan behind the purchase decision of the insurance policy.
The first thing an investor should do before buying an insurance policy is to evaluate his insurance needs and then narrow down on the most appropriate policy types. There are many insurance players in the life insurance market. Also, there are many life insurance variants available in the market. Every insurance product has its own positives and negatives, and investors should carefully weigh the pros and cons before making an investment decision. Diversification and building a portfolio of multiple products is one way to deal with this confusing situation.
These are some broad categories of insurance plans available:
a) Life insurance
This product is available in three broad flavors - endowment plans, term insurance plans and unit linked insurance plans (ULIP). Endowment plans provide insurance cover as well as give returns on maturity. These plans invest most of their corpus in corporate bonds, G-secs and the money market instruments. They provide a safe and guaranteed return in the range of 5-8 percent. Child plans and money-back plans are two variants of endowment plans.
Term insurance is a basic pure insurance plan. The premium in this plan covers the risk element (mortality charges), sales and administration expenses. That is why the premium charged in term insurance plans are much lower than the endowment plans. The premium charged in term insurance does not have any savings element and hence the individual does not receive any maturity benefit.
Unit-linked plans invest the corpus in market-linked instruments like stocks, corporate bonds etc. Investing funds in stocks is the basic difference between ULIPs and traditional insurance plans. These funds promises to provide better maturity benefits as historically the stock market gives better returns over a long term. However, one should keep in mind that investments in stocks come with a certain degree of risk of losing money.
Investors should take life insurance cover as early as possible in life as age is one of the key determining factors in deciding the risk premium. Investors should increase life cover as their earnings/responsibilities grow over time. A thumb rule is to have a life cover of 4-5 times a person's annual earnings. Individuals should invest in a mix of endowment plans, term insurance and unit-linked plans to balance the return and risk cover in the limited cash outflow from their pockets.
b) Medical insurance
Medical insurance premium qualifies for income tax exemption up to Rs 15,000. This Rs 15,000 is in addition to the Rs 1 lakh exemption allowed under Section 80C. Medical insurance schemes provide cover against medical expenses incurred in medical treatment.
Plan based on need
It is very important for investors to plan their insurance investments based on their needs rather than hurrying up. Since insurance is a long-term alliance with the insurance company, it is important to check the clauses of the insurance, the history of the insurance company, formalities to file a claim, time it take to process the claims etc. Investors should look for building an insurance portfolio that maximizes their returns and also offers the required risk cover to them.
Life insurance and retirement plans are effective ways of saving taxes.
The tax breaks that are available under our various insurance and pension policies are described below:
1 Our life insurance plans are eligible for deduction under Sec. 80C.
2 Our Pension plans are eligible for a deduction under Sec. 80CCC.
3 Our health insurance plans/riders are eligible for deduction under Sec. 80D.
4 The proceeds or withdrawals of our life insurance policies are exempt under Sec 10(10D), subject to norms prescribed in that section.
INCOME TAX GROSS ANNUAL HOW MUCH TAX CAN YOU SAVE?
SECTION SALARY
Sec. 80C Across All income Slabs. Upto Rs. 33,990 saved on investment of Rs. 1,00,000.
Sec. 80 CCC Across all income slabs. Upto Rs. 33,990 saved on Investment of Rs.1,00,000.
Sec. 80 D* Across all income slabs. Upto Rs. 3,399 saved on Investment of Rs. 10,000.
TOTAL SAVINGS POSSIBLE ** Under Sec. 80C + 80 CCC - Rs. 37,389
Under Sec. 80 D - Rs.3,399 , calculated for a male with gross annual income exceeding Rs. 10,00,000.
Sec. 10 (10)D Under Sec. 10(10D), the benefits you receive are completely tax-free, subject to the conditions laid down therein.
* Applicable to premiums paid for Critical Illness Benefit, Accelerated Sum Assured and Waiver of Premium Benefit.
** These calculations are illustrative and based on our understanding of current tax legislations, which are subject to change.Please contact your tax consultant for exact calculation of your tax liabilities.
Tax Rates for Individuals financial year 2007- 08
Total Income RATE OF TAX
Resident Resident Others Senior Women Citizen below 65 yrs
Upto Rs 1,10,000/- Nil Nil Nil
Above
Rs. 1,10,000/- to Nil Nil 10%
Rs. 1,45,000/-
Above Nil 10% 10%
Rs. 1,45,000/- to
Rs. 1,50,000/-
Above Nil 20% 20%
Rs 1,50,000 to
Rs. 1,95,000/-
Above 20% 20% 20%
Rs . 1,95,000/- to
Rs. 2,50,000/-
Above 30% 30% 30%
Rs. 2,50,000/-
In case where the Total Income exceeds Rs 10,00,000, there would be a surcharge @ 10%.Marginal relief is available to assessee whose income just exceeds Rs. 10,00,000.
Education Cess on Income Tax
Education Cess @ 3% will be payable on the amount of income tax (including surcharge).
Planning investments in insurance instruments has always been an important part of everyone's investing exercise. While it is important for individuals to have some risk cover, it is equally important that they buy insurance keeping both their long-term financial goals and tax planning in mind. Insurance polices are often bought between the January and March quarter as they qualify for tax rebates/exemption under Section 80C and 80D of the Income Tax Act. However, investors should not buy an insurance policy just to save on tax, there should be a well thought-out plan behind the purchase decision of the insurance policy.
The first thing an investor should do before buying an insurance policy is to evaluate his insurance needs and then narrow down on the most appropriate policy types. There are many insurance players in the life insurance market. Also, there are many life insurance variants available in the market. Every insurance product has its own positives and negatives, and investors should carefully weigh the pros and cons before making an investment decision. Diversification and building a portfolio of multiple products is one way to deal with this confusing situation.
These are some broad categories of insurance plans available:
a) Life insurance
This product is available in three broad flavors - endowment plans, term insurance plans and unit linked insurance plans (ULIP). Endowment plans provide insurance cover as well as give returns on maturity. These plans invest most of their corpus in corporate bonds, G-secs and the money market instruments. They provide a safe and guaranteed return in the range of 5-8 percent. Child plans and money-back plans are two variants of endowment plans.
Term insurance is a basic pure insurance plan. The premium in this plan covers the risk element (mortality charges), sales and administration expenses. That is why the premium charged in term insurance plans are much lower than the endowment plans. The premium charged in term insurance does not have any savings element and hence the individual does not receive any maturity benefit.
Unit-linked plans invest the corpus in market-linked instruments like stocks, corporate bonds etc. Investing funds in stocks is the basic difference between ULIPs and traditional insurance plans. These funds promises to provide better maturity benefits as historically the stock market gives better returns over a long term. However, one should keep in mind that investments in stocks come with a certain degree of risk of losing money.
Investors should take life insurance cover as early as possible in life as age is one of the key determining factors in deciding the risk premium. Investors should increase life cover as their earnings/responsibilities grow over time. A thumb rule is to have a life cover of 4-5 times a person's annual earnings. Individuals should invest in a mix of endowment plans, term insurance and unit-linked plans to balance the return and risk cover in the limited cash outflow from their pockets.
b) Medical insurance
Medical insurance premium qualifies for income tax exemption up to Rs 15,000. This Rs 15,000 is in addition to the Rs 1 lakh exemption allowed under Section 80C. Medical insurance schemes provide cover against medical expenses incurred in medical treatment.
Plan based on need
It is very important for investors to plan their insurance investments based on their needs rather than hurrying up. Since insurance is a long-term alliance with the insurance company, it is important to check the clauses of the insurance, the history of the insurance company, formalities to file a claim, time it take to process the claims etc. Investors should look for building an insurance portfolio that maximizes their returns and also offers the required risk cover to them.
