Investments in tax-saving financial channels help you reduce your tax under the Income Tax Act, 1961 (ITA). Careful planning also allows you to align such investments with your financial goals. From protection against financial problems to creating wealth, such investments play several roles.
Here’s a rundown on the different tax*- saving investments to help you get the maximum benefits from such instruments.
Term Insurance is an essential financial instrument for an earning individual. It helps to secure the financial future of one’s family in case of an unfortunate event. Following are the sections of the ITA through which you can save tax once you opt for a term insurance plan:
Benefits under 80C*: Term insurance is a form of life insurance. Under the current tax laws, life insurance premiums are eligible for deduction from taxable income under Section 80C. You can claim deductions up to ₹ 1.5 lakh on premiums paid every year.
Benefits under 80D*: By opting for a critical illness cover with a term plan, you can avail a deduction under Section 80D.
Benefits under 10(10D)*: The claim money is tax-free, subject to conditions under Section 10(10D).
Endowment Plans are for your long-term goals like retirement, buying a home, children’s education and more. They are meant to inculcate a disciplined savings habit to help you achieve your long-term goals. They offer the dual benefit of growth of your money and life cover^ in case of an unfortunate event.
Similar to a term insurance, ULIPs help to save tax on the premiums paid by claiming deduction under Section 80C and on the amount received at maturity, subject to conditions mentioned under Section 10(10D)*.
ULIPs offer dual benefits of the growth of wealth along with security for the financial future in case of an unfortunate event.
Through the long-term nature of the instrument, you can create funds for your life goals like children’s education, marriage, and buying property.
At the end of the policy term, you receive your investment’s prevailing fund value. But, if an unfortunate event occurs during the policy term, your nominees receive the sum assured.
Similar to term insurance plans and endowment plans, ULIPs help save tax on the premiums paid by claiming deduction under Section 80C* and on the amount received at maturity, subject to conditions mentioned under Section 10(10D)*.
Pension Plans are designed to provide a steady flow of income after retirement. A person can claim deduction of investment made from taxable income under Section 80CCC upto ₹ 1,50,000/-. It has to be noted that the deduction limit under Section 80CCC* is clubbed with Sections 80C and 80CCD(1) of the ITA, which essentially caps the overall limit at ₹ 1.5 lakh.
Similar to a term insurance, ULIPs helps to save tax on the premiums paid by claiming deduction under Section 80C and on the amount received at maturity, subject to conditions mentioned under Section 10(10D)*.
National Pension Scheme (NPS)
Designed to create retirement funds through systematic investments in the capital market, NPS provides double tax benefits. Investments up to ₹ 1.5 lakh are eligible for deductions under Section 80CCD(1)* of the ITA. Also, a further deduction of ₹ 50,000 applies under Section 80CCD(1B)* of the ITA.
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* Tax benefits of ₹ 54,600/-(₹ 46,800/- under Section 80C & ₹ 7,800/- under Section 80D) is calculated at the highest tax slab rate of 31.20%(including cess excluding surcharge) on life insurance premium under Section 80C of ₹ 1,50,000/- and health premium under Section 80D of ₹ 25,000/-. Tax benefits under the policy are subject to conditions under Sections 80C, 80CCC, 80CCD, 80CCE ,80D,10(10D), 115BAC and other provisions of the Income Tax Act, 1961. Goods and Service Tax and Cesses, if any, will be charged extra as per prevailing rates. Tax laws are subject to amendments made thereto from time to time. Please consult your tax advisor for details, before acting on the above
^ Life Cover is the benefit payable on the death of the life assured during the policy term.