Friday, December 19, 2008

Dual Tax Benefit with Insurance

Insurance has traditionally been one of the preferred investment options for investors seeking to reduce their tax burden but there are many benefits of insurance that people are not aware of.

Health insurance joins the party
Sec 80C has always been the more popular and glamorous tax savings section. People know how much they can save and what kind of investments come under the ambit of Sec 80C. But, this year’s budgetary provisions brought the limelight on a so-far lesser known tax provision which is Sec 80D. Sec 80D covers premium paid towards health insurance plans. This year’s budget increased the cap of investments under Sec 80D by Rs 15,000. This covers premium paid towards medical insurance taken on the health of self, spouse and dependent children (max Rs 15,000) and on the health parents (max Rs 20,000 in the case of parents being senior citizens or Rs15, 000 otherwise).So, now when you combine Sec 80C and 80D, you find that you can invest up to Rs 1.35 Lacs which for someone in the highest tax slab converts to an additional savings of almost Rs.5, 099 .

Tax treatment at the time of maturity
When people are taking a decision related to their tax savings investments, they look for tax savings only at the time of investment. But, in doing so they only see the incomplete picture as they do not look at the tax treatment at the time of the maturity of their investments. So, in the worst case they end up investing in a plan which does give them tax savings at the time of investment but at the time of maturity, the maturity proceeds get taxed. For e.g, if a person invests Rs 100 in a plan in which the maturity amount gets taxed, he saves Rs 33 u/s 80C. Let us assume that after a year, this investment matures and the investment value is Rs 200 (income Rs100). If this were to be taxed on maturity, he will end up paying Rs 33 as tax. So, the net gain for the investor is much lower. Life Insurance is one of the few tax savings investment options which give you the benefit of tax-free maturity. So, not only do you save tax on your regular premium payments but you also enjoy tax free maturity benefits. Now, that’s having the cake and eating it too.

1 comment:

Sushil Girdher said...

1. Do not blindly invest money with the the first agent that you might come across. You might end up making mistakes. A lot of people end up buying insurance policies with minimal insurance coverage or putting money in instruments where they cannot access the money when they need it.
2. Do not make last minute decisions just because your payroll department has reminded you that the internal deadline for submitting proofs is approaching. Tax planning involves planning in advance to avoid the last minute scramble