The beginning of the calendar year is considered a good time to take stock of your finances. Since this period also marks the last quarter of the ongoing financial year, it’s also a chance to get an advanced start to your tax planning. While some early birds are already on track with their investments, many keep it for last-minute. However, starting now will allow you ample time to see where you stand financially and to be able to plan for any tax implications as the deadline nears.
Here are some of the best tax-saving products that can help you maximise your savings and achieve financial security at the same time:
Unit-Linked Insurance Plans
ULIPs (Unit-Linked Insurance Plans) are a type of insurance policy that combines the benefits of life insurance and investment. They offer a combination of risk coverage and investment opportunities, making them a popular choice among many investors.
ULIPs are flexible and offer a wide range of investment options, including equity, debt, and balanced funds. This allows investors to choose an investment strategy that aligns with their risk appetite and financial goals. While ULIPs can yield up to 12-15% returns under favourable market conditions, one must remember that the returns on ULIPs are not guaranteed and depend on the performance of the underlying assets.
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ULIPs offer a number of tax benefits that make them an attractive investment option. The premium paid for ULIPs is eligible for tax deductions of up to Rs 1.5 lakh in a financial year. So you can reduce your taxable income by the amount of premium you paid for your ULIP policy. Also, the death benefit provided by a ULIP is tax-free for the beneficiaries.
However, the maturity proceeds under ULIPs are tax-free only when the total annual premium is less than Rs 2.5 lakh. In case you purchase more than one policy and the total premium exceeds Rs 2.5 lakh, then it will be subject to taxation.
Health Insurance
A comprehensive Health Insurance plan is just as crucial as a Life Insurance plan to protect one’s future and ensure that their ambitions are not sidetracked by any unforeseen illness. The added advantage is that under Section 80D of the Income Tax Act, health insurance policies also qualify for substantial tax benefits. The best part is that this is in addition to the Section 80C limit of Rs 1.5 lakh, in which many tax saving instruments are clubbed with the same cap on tax-savings. Apart from Rs 25,000 deduction on premiums paid for medical insurance for yourself, your dependents, and your spouse, you can also claim tax-deductions on premiums paid to insure your parents’ health. If your parents are above 60, there is an upper limit of Rs 50,000, making the total deductions limit Rs 75,000.
Guaranteed return plans
In today’s volatile environment, investing in guaranteed return plans makes a lot of financial sense as they not only provide a higher and secure rate of return but also great tax benefits. Irrespective of the market conditions, these plans keep your capital safe and secure, and even offer a return of up to 7-7.5%, depending on the investor profile. Since these plans come with a life insurance component which is 10 times the annual premium, they are eligible for tax benefits under section 10 (10D). It, therefore, also offers tax rebate of up to Rs 1.5 lakh under section 80C.
Term Life Insurance
Term life insurance is a cost-effective way to provide financial protection for your loved ones in the event of your untimely death, and it also offers a number of tax benefits. The death benefit provided by a term life insurance policy is tax-free for the beneficiaries. This means that your loved ones will not have to pay any taxes on the payout that they receive, which can provide significant financial relief during a difficult time.
Moreover, one can also claim tax deductions on the premium that one pays for the term insurance plan. This deduction is available up to a limit of Rs 1.5 lakh under Section 80C of the Income Tax Act. If the policyholder survives the policy term, Return of Premium plans also offer the benefit of a return of premium (excluding GST), which is also tax-free.
In conclusion, investing in the above-mentioned plans can offer significant tax benefits and help reduce an individual’s overall tax burden by allowing them to claim deductions on their taxable income. However, it is important to consider the features of the plan and its suitability to the individual’s financial goals before making any investment decision.
(By Tarun Mathur, Chief Business Officer – General Insurance, Policybazaar.com)