We know the saying "time and tide waits for no man". These days taxes and bills also do not wait for a man's approval before being dished out to him. Such is the compulsion to face taxes and bills that we cannot do much when it comes to cutting down bills; however, there are ways to save ourselves from the tax trap through wise decisions to save tax.
The rate of tax on our income may vary depending on our age, level of income and the kind of work we do. Since a big chunk of our annual income is paid as income tax, there are ways in which this taxable income can be reduced. One of the most straightforward ways is in the form of the simple tax saving tool, buy insurance plans.
The general rules of tax saving tool:
There some simple rules we need to keep in mind before we make an investment. These are:
1. Maximum return minimum investment
2. Matching financial goals to means of investment
3. Save maximum on tax
4. Keep Risk to minimum
5. Procure complete information about investment before making an informed decision
Let us now have a look how insurance plans can save tax as well as serve as a safe and affordable investment option:
Term Life Insurance
In order to secure the family's future, the breadwinner of the family must purchase a life insurance Policy the earliest that he can. This will help in supporting the family financially in case of death of the breadwinner.
There are various plans that are broadly classified as life insurance products. These include:
1. Whole Term Life Plan
2. Endowment Plans
3. Term Insurance Plans
4. Money Back Plans
5. Unit Linked Plans (Ulips)
Regardless of the type of product that you choose, tax benefit is assured with the purchase of any of these products, since they are all equally eligible for tax benefits under the laws laid down by the Government of India.
The tax deductions are based on the payment of premiums when you buy the insurance policies. The maximum tax deduction offered is Rs 1.5 lakh under section 80C of Income Tax Act (ITA). Also, the death benefit claimed by nominee of the insurance policy holder is exempted from tax under section 10(10D) of ITA.
Consider this piece of trivia: Up to 70% of life insurance policies and products are bought between January and March each year! This is because most people consider that investing in a life insurance policy is the safest, easiest and the most reliable way of securing not just the future, but also income tax benefit.
However, it is advisable that we plan well ahead of the financial year end in order to invest in the right kind of term insurance plans, apart from reaping the obvious tax benefit. Most people postpone tax planning to the very last minute. The flipside is that they could land up playing into the hands of wrong investment options in the last minute just to save tax. If planned ahead, we can invest in Term Insurance plans that help save on tax as well as help us reach our financial goals.