Tax planning is very important...... To reduce your tax liability you should invest in instruments that offer you an additional Rs. 1,00,000 tax benefit in addition to basic tax relief. Well, a life insurance policy offers you one such avenue to claimNotification to an insurance company that payment of an amount is due under the terms of the policy. tax benefits and also offers you and your family protection against any unforeseen circumstances.
If you make your investments at the beginning of the year, and then take into account the tax deductible, you can easily decide your monthly and yearly expenses. It is clever to consider tax planning within the scope of your financial planning as neither one can be considered in isolation.
Life insurance policies can be useful tax planning tools, because the policy holder is eligible for tax benefits under the Income Tax Act 1961 (Act). Though there are multiple modes for saving tax, life insurance is one of the most effective tax planning instrument. Plans from Bajaj Life Insurance can be used for protection, long term savings and tax planning. There are two kinds of income tax benefits available to individuals with respect to long term savings being made in Life Insurance policies:
Life insurance policies can be useful tax planning tools, because the policy holder is eligible for tax benefits under the Income Tax Act 1961 (Act). Though there are multiple modes for saving tax, life insurance is one of the most effective tax planning instrument. Plans from Bajaj Life Insurance can be used for protection, long term savings and tax planning. There are two kinds of income tax benefits available to individuals with respect to long term savings being made in Life Insurance policies:
- Deductions
- 80C/80CCC:
- Benefit is available to Individual assessee and Hindu Undivided Family assessee.
- In case of individual assessee - Himself/herself, spouse, children of such individual
- In case of HUF assessee - any member of HUF
- If the amount of premiumA regular payment made to the insurance company to keep the policy in force. paid in a financial year for a policy is in excess of 20% of the actual capital sum assuredThe sum assured is the minimum amount payable to the assured or his/her dependants on the death of the life assured., then deduction will be allowed only for premiums upto 20% of the sum assuredThe sum assured is the minimum amount payable to the assured or his/her dependants on the death of the life assured..
- For insurance policies issued on or after April 01 2012, deduction is allowed for only so much of the premiumA regular payment made to the insurance company to keep the policy in force. payable as does not exceed 10% of the actual capital sum assuredThe sum assured is the minimum amount payable to the assured or his/her dependants on the death of the life assured..
- Above benefits shall be reversed if the policy is terminated/cease to be in force within 2 years for traditional products and 5 years for ULIP products after the date of commencement of policy.
- Sec 80CCE - Maximum amount of deduction that an assessee can claimNotification to an insurance company that payment of an amount is due under the terms of the policy. under Sections 80C, 80CCC will be limited to Rs. 100,000.
- Benefit is available to Individual assessee and Hindu Undivided Family assessee.
- 80D
- Benefit is available to Individual assessee and Hindu Undivided Family assessee.
- In case of individual assessee - Himself/herself, spouse, dependent children and parents of such individual
- In case of HUF assessee - any member of HUF
- The qualifying amounts under Section 80D for self, spouse and dependent children is upto Rs. 15,000/- and additional deduction upto Rs. 15,000/- for the parents. However, a higher amount of upto Rs. 20,000/- is permitted for parents, if they are senior citizens. Assessee is allowed to make any payment on account of preventive health checkups upto Rs. 5,000 within prescribed overall limit.
- Benefit is available to Individual assessee and Hindu Undivided Family assessee.
- 80DD: Premiums paid for disabled dependent are eligible for deduction up to Rs. 50,000 every year. A higher deduction of Rs. 75,000 shall be allowed, where such dependent is a person with severe disability.
- Exemptions
- 10 (10D): Any sum received under a life insurance policy, including the sum allocated by way of bonusDividends paid to shareholders from funds created out of additional profits realised by the company. on such policy will be exempt from tax. However, this rule does not apply to following amounts:
- Sum received under Section 80DD(3), or
- A sum received under a Keyman Insurance Policy, or
- Any sum received other than as death benefit under an insurance policy which has been issued on or after April 1 2003 and if the premiumA regular payment made to the insurance company to keep the policy in force. payable in any of the years during the term of the policy does not exceed 20% of the sum assuredThe sum assured is the minimum amount payable to the assured or his/her dependants on the death of the life assured.. For insurance policies issued on or after April 01 2012, exemption would be available for policies where the premiumA regular payment made to the insurance company to keep the policy in force. payable for any of the years during the term of the policy does not exceed 10% of the actual capital sum assuredThe sum assured is the minimum amount payable to the assured or his/her dependants on the death of the life assured..
- 10 (10D): Any sum received under a life insurance policy, including the sum allocated by way of bonusDividends paid to shareholders from funds created out of additional profits realised by the company. on such policy will be exempt from tax. However, this rule does not apply to following amounts:
Tax Slabs
This explains how the various tax brackets in India work and how much tax relief we are all eligible for. The new tax structure was initiated on 1st April 2012.The tax structure is as follows:
Tax slabs for Financial Year 2012-2013 (Assessment Year 2013-2014) | |
| For Individuals below 60 years of age | |
Income Level | Tax Rate |
| Upto Rs. 2,00,000 | Nil |
| Rs. 2,00,001 - Rs. 500,000 | 10% |
| Rs. 500,001 - Rs. 10,00,000 | 20% |
| Above Rs. 10,00,000 | 30% |
| Tax slabs for Financial Year 2012-2013 (Assessment Year 2013-2014) | |||
| For Senior Citizens aged 60 years or above but less than 80 years | For Very Senior Citizens aged 80 years or above | ||
| Income Level | Tax Rate | Income Level | Tax Rate |
| Upto Rs. 250,000 | Nil | - | - |
| Rs. 250,001-Rs. 500,000 | 10% | Upto Rs. 500,000 | Nil |
| Rs. 500,001-Rs.10,00,000 | 20% | Rs. 500,001-Rs.10,00,000 | 20% |
| Above Rs. 10,00,000 | 30% | Above Rs. 10,00,000 | 30% |
Surcharge on Income Tax:
There is no surcharge on Income Tax for the Financial Year 2012-2013 for Individuals.
Education Cess & Secondary & Higher Education Cess on Income Tax
Education Cess @ 2% & Secondary & Higher Education cess @ 1% will be payable on the amount of income tax.
Service Tax
All premiumA regular payment made to the insurance company to keep the policy in force.s and charges are subject to applicable taxes including service tax, education cess and secondary & higher education cess as applicable under the prevailing tax laws. With effect from April 1, 2012, Service Tax Rate has been changed to 3.09% on first year premiumA regular payment made to the insurance company to keep the policy in force. and 1.545% on subsequent year premiumA regular payment made to the insurance company to keep the policy in force. for traditional endowment & annuityA contract sold by a life insurance company that provides fixed or variable payments to a recipient, either immediately or at a future date. products and 12.36% for ULIP, Term, Health products & Riders.
Disclaimer
- The above are extracts from the Income Tax Act’1961. Please note that tax laws are subject to change and hence before placing reliance on the above, the latest version of the above section should be checked. It should also be noted that the change in tax laws could have retrospective effect also.
- This information should not be construed as expert tax, legal or investment opinion from Bajaj Allianz Life Insurance Company Limited. Bajaj Allianz Life Insurance Company Limited would not be responsible in any manner for decisions made on the basis of above information.
- Please consult your tax advisor for claiming tax benefits on insurance products.
- Please note that the revised tax benefits and slabs presented in the Union Budget 2012 shall be applicable post Finance Bill 2012 gets passed and is enacted as law.
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