A life or health insurance plan serves as a two-for-one option this tax season. Life insurance is the top choice for wise tax planning and health insurance comes a close second. Apart from guaranteed returns, these insurance plans assist in maximum tax savings. This is possible through various exemptions as per the Income Tax Act, 1961. Find out more about the various forms of deductions and exemptions.

Life insurance

Life insurance policies are wonderful investment avenues. They guarantee the fulfilment of your family’s dreams in the event of a mishap. With a low cost of investment, you can do effective tax planning. Here is a summary of what the different sections of the Income Tax Act, 1961 cover.

  1. Section 80C

Life insurance premiums paid for yourself, your spouse, or child are tax deductible. Here, 10% of the sum assured comes up for deduction. This is subject to a maximum amount of Rs. 1.5 lakh. Say, you have life insurance in your name for an assured sum of Rs 45 lakh. You pay a premium of Rs 2 lakh every year. Claim a deduction of Rs 1.5 lakh. This is the upper limit. What if you close the policy within two years from initiation? The benefit gets reversed.

  1. Section 10(10D)

All returns earned from life insurance policies are tax-exempt under Section 10(10D). This includes maturity value, death benefit, surrender value, and survival benefit. Any other bonus accrued is not subject to tax. There is no upper limit prescribed. So, the whole amount is tax-free.

  1. Section 80CCC

Pension or retirement policies are another form of life insurance. Premiums paid on such policies are also eligible for tax benefits. Get benefits of up to Rs 1.5 lakh per annum. But, surrendering the plan early on will reverse the tax benefits.

  1. Section 10(10A)

On maturity, a third of the pension or retirement amount is tax-free. The remaining two-thirds fall under income. Thus, it is taxable. In case of death of the beneficiary, the whole amount is exempt from tax.

  1. Section 80CCE

The total upper limit of deductions from your taxable income under Sections 80C, 80CCC, and 80CCD(1) is Rs 1.5 lakh. So, calculate the total amount paid on life insurance and retirement premiums. Your contribution to the central government’s pension scheme cannot exceed Rs 1.5 lakh.

Health insurance

Health insurance is another prudent investment with minimum risk and substantial return. Do you pay the premiums on time? You will get reimbursed in case of medical contingencies. This also qualifies for tax deductions. Health insurance premiums paid for yourself, your spouse, your children are tax-free. Even your parents’ insurance premiums qualify as savings under the Income Tax Act.

  1. Section 80D

Claim a health insurance premium of Rs 25,000 paid for yourself, your spouse, or your child. The same sum applies to your parents. The limit can reach up to Rs 30,000 for parents who are senior citizens. Apart from this, the deduction allows payments for preventive health check-ups. This is up to Rs 5,000 within the approved limit.

  1. Section 80DD

Claim a deduction of up to Rs 50,000 from your taxable income if you have a disabled dependent. This section includes a disabled spouse, parent, or child. The tax exemption is higher if the disability is more than 80%. This is classified as a severe disability. Under this, you can claim tax exemption of up to Rs 75,000.

What are you waiting for?

Life and health insurance plans allow you to save money through tax benefits. Do you want to be a prudent investor and tax payer? Then invest in the health and future of your family as well as yourself. Exploit the benefits. Be judicious. Be wealthy.