How to divide your investment in insurance products to save tax

We have made headway into the brand new year, which additionally occurs to be the time for monetary aim setting and planning for most individuals. A well-planned starting helps set the tone for the remainder of your year, so it’s crucial to analyse your investment choices. Your investments ought to concentrate on wealth creation whereas additionally making certain most financial savings and monetary safety. Tax advantages represent an necessary a part of your financial savings and often rank on the prime of an investor’s to-do checklist. Insurance-cum-investment products will help you obtain all these objectives effectively.

It’s all the time higher to get a head-start as early as potential on your monetary planning with tax advantages. It’s typically stated that you just shouldn’t put all your eggs in one basket. This holds true for your investments and it’s all the time advisable to divide your money into totally different choices for higher monetary safety.

Here, we discover a few of these choices and their respective options to assist with your planning.

Insurance Products underneath Section 80C and 10 (10) D – Term Insurance, ULIP, Guaranteed Return Plans 

You have three insurance-cum-investment choices for tax rebate underneath Section 80C — Term Life Insurance, Unit Linked Insurance Plans and Guaranteed Return Plans.

Term insurance is just about self-explanatory. It not solely helps you create a legacy with your investment but additionally helps with tax advantages underneath Section 80C and 10(10)D of the Income Tax Act, 1961. The higher restrict for exemption right here is Rs 1.5 lakh. So, you may save extra by buying a coverage for fogeys, partner or youngsters. As the third COVID wave intensifies, it’s good to have this plan as it would additionally assist safeguard the way forward for your dependents. 

Next comes ULIP – among the finest investment choices to earn tax-free returns. You can stand up to 12-15% return with these plans and so they additionally provide tax advantages underneath Section 80C and 10(10) D of the Income Tax Act, 1961. The coverage time period for these plans is mostly between 5 and 30 years. The better part is you may exit the plan after 5 years or after maturity, and you’ll nonetheless have a tax-free fund worth in hand. Further, if you need, you may change between debt and fairness funds based mostly on your desire.

However, crucial function that an investor ought to think about is that investing in ULIPs is tax-free for an annual premium of up to Rs 2.5 lakh as per Section 10(10)D. So, it is sensible to make investments not less than Rs 2.5 lakh as in contrast to mutual funds the place they are going to be incurring a tax of 10% above Rs 1 lakh. Suppose a 30-year-old invests Rs 10,000 over 20 years in these plans, they will accumulate a tax-free corpus of round Rs 1 crore which will likely be taxable in the case of mutual funds. The insurance part, as soon as once more, makes this feature a sensible investment selection in the present circumstances. 

Next on the checklist are assured return plans – the perfect guess for risk-averse buyers. They don’t simply promise monetary safety but additionally assist significantly with tax-saving advantages whereas letting the policyholder lock their money for longer intervals of time. Apart from this, you may select an earnings plan to get a recurring earnings or go for a lump sum profit plan. For occasion, HDFC’s Sanchay Fixed Maturity Plan affords assured returns in the type of a lump-sum profit at round 5.5% rate of return. This additionally comes with a life cover and different insurance advantages.

Not to neglect, they’re your answer to the falling rates of interest of FD. While FD stands to reap a taxable ~5% return, assured return plans can get you up to ~6% relying on phrases and circumstances. Since these plans include an in-built function of life cover that’s 10 instances the annual premium, it mechanically qualifies for tax rebate underneath Section 10(10)D.

Under Section 80D – Health Insurance

The significance of well being insurance can’t be emphasised sufficient, particularly because the pandemic good points momentum once more. Health insurance affords tax exemption to the policyholder underneath Section 80D of the Income Tax Act, 1961. Under this part, you’re allowed to declare a tax deduction of up to Rs 25,000 per monetary year for you, your partner and dependent youngsters. The medical insurance premium paid for fogeys qualifies for a further deduction of Rs 25,000 if they aren’t senior residents. In case both or each of your mother and father are senior residents, this restrict will increase to Rs 50,000. Effectively, one can stand up to 75,000 in tax deductions on buying a well being insurance coverage for self and fogeys.

Now that you’ve got your choices laid out, you can also make a greater knowledgeable monetary determination on dividing your money for reaping larger tax advantages.

(By Tarun Mathur, CBO-GI,

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