How to Maximize your Tax Benefits on Your Life Insurance Policy

NUTAN GUPTA

05 Oct 2016

Many people purchase life insurance plans not only to safeguard their loved ones financially in the event of death or permanent disability but also to claim the related income tax benefits. Section 80C of the Income Tax Act provides for various relief / claim avenues through which investors and those who have life insurance policies can claim. However, making these claims is not a matter of simple form filling exercise. One has to meet certain conditions and meet certain obligations. Here’s how you can maximize your tax benefits on your life insurance policy.

Which type of policy qualifies?

According to section 80C of the Income Tax Act, the only policy which provides cover to an individual and his/her immediate family (excluding parents) can be accounted for as being duly qualified for the requisite deductions when claiming tax. Other policies that may relate to other people such as parents, siblings or workers are considered not valid for this purpose.

It always helps to be conscious that if yours is a keyman insurance policy, then the proceeds from it are taxable.

What amounts qualify for claims?

The total amount that can be claimed for deduction from gross total income under section 80C currently stands at Rs 1.5 lakh. This includes life insurance premiums and investments in other avenues as specified in the act. It is also important to make sure that annual premium paid including any other sums such as service tax should not surpass the recommended limits of 10 percent, 15 percent or 20 percent of the actual sum assured.

When to Claim Tax Benefits on your Life Insurance

The tax claim on the premium can be made as a deduction in the same financial year in which the premium was paid. Furthermore, in order to retain benefits accorded by section 80C, it is important that you don’t surrender or leave to lapse, or terminate, a policy that you may be dissatisfied with before the expiry of the minimum lock-in period.

Provide your insurer with your Permanent Account Number

To avoid a higher tax deduction at source (TDS) where TDS is applicable. TDS is deducted at a higher rate of 20 percent for accounts without PAN rather than 2 percent.

To maximize on the tax benefits claim of your life insurance, you ought to be prudent on your policy features, claim amount and timing.

Buy now

Similar articles

  • Responses
  • Patidar Samaj

    - 2 hrs ago

    This article claims RJio was given a "Backdoor Entry" into the 4G Based Voice Routing. The peculiar aspect is without the Voice License, Rjio would have been a mere ISP. With the license, it is now a holistic communications service provider, with ability to exponentially scale the bouquet of products. The events indicate it was meticulously planned way before the auctions because the auctions were clear on the agenda: 4G for internet only.

Load More
mutual-fund

Why to Choose Mutual Funds Instead of Directly Investing Into Equities?

Whether to invest in equities or mutual funds is a question that has plagued every investor. As someone who needs the best value for his/her investment should you invest in equity directly or via mutual funds?

Let’s start by first understanding what these two terms ‘equities’ and ‘mutual funds’ stand for-

Equities- Equities generally represent ownership of a company. If you own any equity in a company, you are a part owner of the said company (depending on how much equity you own).

Mutual Funds – It is an investment scheme which is professionally managed by an asset management company. It pools together the resources of a group of people and invests their money in equities, debentures, bonds and other securities.

Why choose mutual funds over equities?

For people who’ve never invested in either stocks or mutual funds, it is hard to know which is better and where to start. Broadly speaking, if you are a novice investor, mutual funds are not only less risky but also way easier to manage. Here are some ways in which investing in mutual funds is beneficial as opposed to investing in equities -

Diversification

Mutual funds provide more diversification as compared to an individual equity stock. When you invest in equity, you are investing in a single company which has its inherent risk. For example, if you invest Rs.20,000 in buying equities of one company, you could face a total loss if that particular company performs poorly in the market.  

If you invest the same amount in mutual funds, it will be invested in different kinds of stocks and financial instruments, high-risk and low-risk both, so you might not face total loss even if one company does poorly.

Scale of Investment and Lower Costs

For an individual investor buying and selling stocks is a difficult task due to its high price. Thus, any gains made from stock appreciation are nullified if the overall trading costs are considered. Comparatively with mutual funds, as the money is pooled from a large number of investors, the cost per individual is lowered.  

Another advantage of mutual funds is that you don’t need to invest large sums of money. Buying equities for a profitable venture needs huge amounts of money, a minimum of few lakhs. With mutual funds, you can start with Rs.1000 and earn profits on that as well.

Convenience

Keeping an eye on the markets everyday is a time-consuming business, especially if you are investing as a side gig. There are people who spend their lives studying the market and still end up sustaining heavy losses. Though investing in mutual funds does not guarantee high returns, it is stress-free and needs less work as compared to investing in equities.

To sum it up

It is important to remember that mutual funds have their own disadvantages as well. Thus, as with any financial decision, educating yourself and understanding the suitability of all the available options is the ideal way to invest. 


Banner

How to Maximize your Tax Benefits on Your Life Insurance Policy

NUTAN GUPTA

05 Oct 2016

Many people purchase life insurance plans not only to safeguard their loved ones financially in the event of death or permanent disability but also to claim the related income tax benefits. Section 80C of the Income Tax Act provides for various relief / claim avenues through which investors and those who have life insurance policies can claim. However, making these claims is not a matter of simple form filling exercise. One has to meet certain conditions and meet certain obligations. Here’s how you can maximize your tax benefits on your life insurance policy.

Which type of policy qualifies?

According to section 80C of the Income Tax Act, the only policy which provides cover to an individual and his/her immediate family (excluding parents) can be accounted for as being duly qualified for the requisite deductions when claiming tax. Other policies that may relate to other people such as parents, siblings or workers are considered not valid for this purpose.

It always helps to be conscious that if yours is a keyman insurance policy, then the proceeds from it are taxable.

What amounts qualify for claims?

The total amount that can be claimed for deduction from gross total income under section 80C currently stands at Rs 1.5 lakh. This includes life insurance premiums and investments in other avenues as specified in the act. It is also important to make sure that annual premium paid including any other sums such as service tax should not surpass the recommended limits of 10 percent, 15 percent or 20 percent of the actual sum assured.

When to Claim Tax Benefits on your Life Insurance

The tax claim on the premium can be made as a deduction in the same financial year in which the premium was paid. Furthermore, in order to retain benefits accorded by section 80C, it is important that you don’t surrender or leave to lapse, or terminate, a policy that you may be dissatisfied with before the expiry of the minimum lock-in period.

Provide your insurer with your Permanent Account Number

To avoid a higher tax deduction at source (TDS) where TDS is applicable. TDS is deducted at a higher rate of 20 percent for accounts without PAN rather than 2 percent.

To maximize on the tax benefits claim of your life insurance, you ought to be prudent on your policy features, claim amount and timing.

Buy now