How to get maximum tax benefits in FY 22-23 by investing in insurance: Tips
Saving in insurance should not be limited to saving taxes, but consumers should understand that insurance is a safety net that can protect them in planned and unplanned circumstances
Every financial year, retail investors look for newer options for tax savings. From investing in PPF to ELSS mutual fund schemes, the National Pension Scheme (NPS), tax-saving fixed deposits (FDs), to name a few, there are multiple tax-saving options. However, there is one significant tax-saving instrument that consumers often overlook, and that is guaranteed return savings plans.
These plans can aid in saving tax at three stages: during payment, accumulation, and withdrawal. Saving in insurance should not be limited to saving taxes, but consumers should understand that insurance is a safety net that can protect them in planned and unplanned circumstances; the added advantage of saving tax is only the icing on the cake.
Payment of premium towards life insurance plans provides a policyholder with life cover, as well as certain tax benefits. Similarly, products like Guaranteed return savings plans not only offer guaranteed returns as high as 7.2% but also offer triple tax exemption (EEE).
As mentioned earlier, consumers can obtain tax exemption at three stages. Tax Exemption at Premium-Payment Phase, where premiums paid are eligible for tax benefit of Rs 1.50 lakh per annum as per Section 80(C). Tax Exemption at Accumulation Phase, where there is no taxation during the accumulation phase and Tax Exemption at Withdrawal Phase, where pay-outs are tax-free as per the provisions mentioned under Section 10 (10D).
Any resident or non-resident individual can claim a tax benefit for life insurance premium paid under Section 80C, up to Rs 1.50 lakh every year. As an individual, the deduction is available for the policy taken in the name of oneself, one's spouse, or one's children.
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Similarly, tax benefits are available for health insurance policies. Under Section 80D, one can avail an income tax deduction, against healthcare related expenses and the payment of health insurance premiums. The amount of tax deductions available under Section 80D is determined by the number and age of the people covered under health insurance.
How to save up to Rs 1 lakh
The taxpayer can save up to Rs 25,000, Rs 50,000, Rs 75,000, or Rs 1 lakh, depending on the covered individuals. Section 80D also covers payments made for preventive health check-ups, critical illness, and other health-related riders provided under a life insurance policy.
Moreover, tax deductions can be availed for both types of health insurance policies: defined benefit, where a fixed amount is paid as a claim, and indemnity, where the claim is paid based on the medical expenses subject to the overall sum insured.
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However, tax benefits on both life and health insurance comes with certain conditions. The consumer should abide by those clauses to avail the tax benefit. For instance, the insurance premium must be paid using a method other than cash, such as a check or funds transferred via NEFT or UPI. However, cash payments on account of preventive health checkup are admissible for tax benefits.
In case, the premium is paid by another person, on behalf of the individual claiming the tax deduction, the latter will not be able to claim any tax exemption.
A resident individual incurring medical expenses for a dependent (spouse, children, parents, brothers, or sisters) with a disability can claim a deduction under Section 80DD. If the taxpayer incurs any expenses, he or she is entitled to Rs 75,000 tax deduction. A deduction of Rs 1,25,000 is available if the dependent person has 80% or more disability.
In this way, multiple tax saving options can be availed by investing in the right insurance tools, which can safeguard one’s family as well as provide tax benefits. It is always advisable that the consumer does proper research before investing in any insurance product or any other kind of investment tool. Consumers should positively ensure that the money invested in insurance caters to their insurance needs and provides optimal benefits.
(Author: Aftab Chaz, associate director and business head at Elephant.in)
DISCLAIMER: The views expressed in this article are that of the author. India TV does not confirm its veracity.