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Tax planning is a crucial part of financial planning and if you do it wisely, you can achieve dual objectives. One is to meet your financial goals and the other is to save tax in the process. Investing in insurance policies can help you in saving tax. You can consider various tax-saving insurance options to maximize your tax savings.
Mentioned below are some common income tax-saving insurance plans for you. Each plan serves a different purpose and is an ideal addition to your portfolio.
A life insurance policy is a critical part of any financial portfolio. It offers a financial cover to the family of an individual in his absence. If you are the breadwinner of your family, you need to take life insurance in order to ensure complete security of your loved ones when you are not around. Life insurance is available in many forms that include whole life plans, endowment plans, money back plans,term plans, and unit-linked plans. No matter whatever plan you choose, they all offer equal benefits equal from a tax-saving purpose. You can avail of a tax deduction on the premium paid on these policies. You can claim a maximum maximum income tax deduction of INR 1.5 lakh as per Section 80C under the Income Tax Act, 1961.
Pension plans are a different type of life insurance plan. These plans have a different objective. They provide for you and your family after your retirement. There are two aspects of a pension plan—accumulation and withdrawal. During accumulation, you set aside money while you are in employment. Once you retire, you can withdraw the money. The tax benefits will only be applicable in the phase of accumulation. Maximum deduction allowed is INR 1 lakh under Section 80CCC. At the time of maturity, only one-third of the accumulated amount is tax-free and the balance is taxed at a marginal rate. In case of death of the beneficiary, the amount is tax-free.
A health insurance policy is an ideal addition to your portfolio. It is one of the best tax-saving instruments. It will cover for the expenses incurred from an accident or hospitalization, as well as, the pre and post-hospitalization expenses. It offers tax benefits for the premium paid for self, spouse, children, and dependent parents. The maximum tax benefit is INR 50,000 for senior citizens and INR 25,000 for others. The benefit can be availed under Section 80D of the Income Tax Act and the maturity value is tax-free for the sum received in case of a critical illness policy.
Consider these three investment plans to save tax. However, you need to remember that the purpose of investment should not be restricted to saving taxes. These plans will offer protection in case of a sudden death or an accident. They will provide for your family in case of your absence and will ensure that they remain debt-free. Consider your long-term goals and current health condition while selecting an insurance plan.
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