How your life and health insurance policies can help you save taxes?

Taxes are a major source of anxiety for everyone irrespective of the bracket they fall under. However, you can always reduce your tax burden by making the appropriate investments beforehand. The Income Tax Act of 1961 grants all taxpayers various exemptions on qualifying investments. Some of these investments are tax-saving mutual funds, fixed deposits, pension plans, PPFs, and life insurance policies. However, do you know about tax benefits one could avail for several insurance plans, such as life insurance policy and health care insurance? Regardless of the sort of insurance you purchase, as an investment, all insurance plans serve three important functions. They provide you with financial security against unforeseen events, help you build a corpus and at last provide tax benefits.

In today’s world, insurance is a need. Considering how low the penetration of insurance is in our country, the government provides tax benefits to ensure more and more people buy insurance. As of now, one can get tax benefits only on their life insurance policy and health insurance plans respectively. In this article, we will discuss which are the sections under which one could get tax benefits for both health and life insurance policies: 

What Are the Tax Advantages one could avail from a Life Insurance policy?

According to the Income Tax Statute of 1961, each life insurance policy provides tax benefits up to a certain amount under various parts of the statute. The tax benefits for the various insurance policies are:

Tax Advantages of Life Insurance Policies

Section 80C: All life insurance policies are tax-exempt under Section 80C of the Income Tax Act of 1961. The premium one pays for their life insurance policy applies to endowment plans, whole life insurance plans, money-back policies, term insurances, and Unit Linked Insurance Plans (ULIPs). Additionally, the maximum deduction under this section is ₹1.5 lakh. Premiums paid for insurance coverage purchased for oneself, a spouse, dependent children, and, in some situations, dependent parents are tax deductible too

Section 80CCC: This section exempts any cash paid under annuity plans of the Life Insurance Corporation of India or any other insurance firm to obtain a pension. The maximum deduction under this section is ₹1.5 lakh.

Section 10(10D): The amount you receive from the insurance company is totally excluded from income tax, subject to certain restrictions. The exemption covers the receipt of the sum assured, bonus, maturity value, surrender value, and death benefit.

However, you should be aware that if you terminate or withdraw any of the tax-exempt life insurance products before the five-year period expires, the deductions will be cancelled. Your deductions will be included in your income in the year you cancel your insurance, and you will be taxed appropriately.

• For 80C, your total premiums in a fiscal year cannot exceed 10% of the sum assured.

• In the case of Section 10(10D), the tax exemption is limited to 10% of the sum secured.

Tax Advantages of Health Insurance Policies 

The Indian Income Tax Act allows deductions for health insurance premiums paid throughout the fiscal year. These deductions can dramatically reduce your taxable income, hence lowering your overall tax liability. The amount you can deduct is determined by who you have insured under your health insurance plan and their age. Here’s the breakdown:

Individuals and families under 60 years old: In this case, you can deduct up to ₹25,000 for health insurance premiums for themselves, their spouses, and children.

Include parents (under 60 years old): If your health plan includes your parents (under 60), the total deduction rises to ₹50,000 (₹25,000 for you and your family + ₹25,000 for parents).

Including Senior Parents (Over 60 Years Old): If your plan includes senior parents (over 60), the maximum deduction is ₹75,000 (₹25,000 for you and your family + ₹50,000 for parents).

Individuals or Families with Seniors (anyone older than 60) and Senior Parents: The maximum deduction of ₹1,00,000 is applicable if your plan covers yourself or a family member over 60, including senior parents (both over 60). You can deduct ₹50,000 for each group (self, family, and parents).

Additional deductions for disabilities and certain diseases:

The Income Tax Act also allows for deductions for health insurance premiums paid by people with disabilities or certain conditions. These deductions are separate from the ones described above.

Conditions of Tax Benefits on Life and Health Insurance

Keep in mind the following conditions when claiming tax deductions whether for a health insurance or life insurance policy:

• If you pay your health insurance payments in cash, you will be unable to benefit from the tax benefits under 80D. Any other online payment method, such as cards, cheques, drafts, or Internet Banking, is tax deductible under Section 80D.

• Life insurance maturity awards under Section 10 10(D) should be at least 10% more than the policy premiums paid in each fiscal year. If the annual premium exceeds 10% of the sum assured, the insured cannot receive it tax-free.

• Deductions under 80D and 80C can be claimed for years in which premiums have been paid. If you choose a single premium life policy, you may only claim the 80C deduction once.

Steps for Filing Tax Deduction Claims

Income tax returns can be downloaded as a pre-filled form online. There are various types of forms available, so choose the one that best suits you. Fill out the form with the correct salary and interest income, as well as other financial information. Once you’ve completed the form online, including any tax returns from your insurance policies, click ‘Validate’ on the ‘Taxes Paid and Verification’ section. The page will automatically calculate your refund, which will be presented in a separate row. Submit the form indicating the right amount of tax refunds due to you.

Don’t get insurance just for tax benefits.

Instead of purchasing insurance coverage just for tax benefits, carefully compare them. Reading the minute print of your policy is critical. As an affordable tax-saving investment alternative, both life and health life insurance policies are two of the best on the market. You can pay your premiums monthly, semi-annually, or annually, according on your schedule.