What are tax benefits from various insurance plans in India?
We might be investing in various insurance plans, health insurance plans or pension plans. However we do not know whether these are really eligible to get tax exemptions. What are the tax benefits received from life insurance plans? How tax can be saved from health insurance plans? Does any other insurance plans help you to save tax either by purchasing such plans or at the time of maturity?
What are insurance plans?
If you are already familiar, you can skip this section.
As per Wikipedia, Insurance is a means of protection from financial loss. It is a form of risk management primarily used to hedge against the risk of a contingent, uncertain loss.
For insurance, a contract is entered into, which is known as insurance policy which contains the terms and conditions. The insured is financially compensated according to the same. Due to death, there is no financial loss, but it is compensated in financial terms. Investment in Insurance Policy not only gives security and peace of mind but also exemptions in income tax.
What are various insurance plans in India?
- Life Insurance including money back plans, endowment plans and ULIPs
- Health Insurance / Medical insurance
- General Insurance
- Property Insurance
- Vehicle Insurance
- Business Insurance
- Travel Insurance
What are tax benefits from Health insurance plans in India?
Medical or health insurance is to cover the medical costs, which a person may incur in future. The claim and premiums are decided on the basis of the health care expenses that may incur on approximate basis.
- Various benefits under the income tax act are available as a deduction from the taxable income of a person under section 80D, 80DD and 80DDB.
- 80D – A person can claim a deduction of Rs.25,000 for health insurance premium for self and family, if he is a senior citizen then deduction is 30,000. This medical insurance premium covers these family members – self, spouse, dependent children and parents. If the person is paying additional health insurance premium for his parents then additional deduction of 25000/ 30000 can be taken. This means a person can get maximum benefit of Rs.60,000 u/s 80D. A person can even claim tax deduction for the expense of health checkup. In this case, the maximum deduction allowed is Rs.5000. This deduction is not available per person.
- 80DD– Medical treatment of dependent relative is tax deductible at Rs.75000 for 40% disability and 125000 for severe disability (80%). Certificate of disability is required to be furnished from prescribed authority.
- 80DDB –Treatment of self or dependent relatives for specified disease is allowed lower of Rs.60, 000 (80,000 for senior citizens) or the actual amount paid.
- The amount received from health insurance is merely reimbursement of expenses that you have incurred and it does not constitute your income therefore it is exempt. Many Insurance Companies under which you are not required to pay any amount to the medical institutes have started cashless Health Insurance Schemes. The insurance company pays the medical bills are directly to the medical institute.
What are tax benefits from Life insurance plans in India?
Life insurance is a kind of shield against financial loss resulting from insured Individual’s death. It gives you and your family the financial security and certainty to deal with the consequences of any unseen unfortunate events.
- Life insurance policies can be used as an effective tax planning tool as premium paid on insurance policies is entitled to tax benefits under Section 80C of the Income Tax Act 1961 (Act) and maturity proceeds are also qualified for exemption under section Section 10(10D) and Section 10(10A)(iii). Life Insurance helps assessee not only in tax saving, achieving their long term goals but also provides ample protection in monetary terms against unforeseen events for your family.
- Deduction under section 80C is available to the maximum of 1.5 Lac on payment of life insurance premium for self, spouse and children. Deduction will be allowed only for premiums upto a maximum 20% of the sum assured.
- The proceeds under a life insurance policy are exempt under Section 10(10D) of the Act, subject to the provisions of the said section.
- It includes life insurance, endowment plans, money back plans and unit linked insurance plans.
What are tax benefits from a pension plan or annuity plans in India?
A pension plan is designed to generate regular income for individuals once they retire. Various pension plans are available where a person invests a lump sum amount or regular installment over a period of time and in return they get fixed amount either for life or for a fixed number of years in the future when they are not earning or dependent. Insurance companies and Government also offer various pension plans for the benefit of citizens. For example: – Govt has introduced Atal Pension Scheme.
- An investment in pension funds is eligible for deduction from your income under Section 80CCC. Investment limit is clubbed with the maximum limit of Section 80C i.e.1.5 Lac.
- Commuted Pension received from Pension fund (applicable to the Pension Plans approved by IRDA) would be tax-free under Sec 10 (10A) (III) if the policy is surrendered before maturity, all the deductions of premium, which have been taken by the assessee, shall be added back and tax has to be paid for them. Moreover, 1/3rd of the amount so received shall be treated as your income and taxable as per the slab rate. The left over 2/3 of the amount must be used to purchase annuity plans as specified by IRDA. The monthly income earned from this annuity plan will be added to your taxable income and taxed accordingly.
What are tax benefits from NPS in India?
- New Pension Scheme – Additional 50,000 deductions from FY2016
- From last financial year, an individual would get Rs 50,000 additional tax benefits by investing in the new pension scheme (NPS). One has to invest in TIER-1 account to get this benefit. There are several best NPS funds to invest in 2016. You can review and invest in them.
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What are tax benefits from various insurance plans in India
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