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Monday, March 08, 2021

Saving tax by investing in different insurance products under Section 80C

There are even numerous investment-cum-insurance products available in the market that guarantee long term returns with financial security to the dependents.


January 25, 2021 6:12:01 pm
The premiums that you pay towards buying a term life insurance policy to financially secure the future of your dependents quality for tax exemption under Section 80C of the Income Tax Act, 1961. (Representative image)

Written by Santosh Agarwal

People still planning to make investments in different tax saving products under Section 80C must hurry as the investment deadline approaches near. While investing in different investment products is important for a well-balanced investment portfolio, it is equally important to invest in products that promise maximum returns.

For an overall financially secured future, it is a must to make insurance products a part of your investment. There are even numerous investment-cum-insurance products available in the market that guarantee long term returns with financial security to the dependents.

To help you, here are some prominent tax saving options that will assist you in making a wise and informed decision.

Term Life Insurance

A prominent insurance product that must be a part of your investment kitty is Term Life insurance. The premiums that you pay towards buying a term life insurance policy to financially secure the future of your dependents quality for tax exemption under Section 80C of the Income Tax Act, 1961.

The maximum amount that a person can avail of under this section is 1.5 Lakh. You can even reduce your taxable income by buying a term life insurance policy for your parents, spouse and kids.

Another important advantage of investing in term life insurance is that the payout/sum assured received by the dependents on the death of the policyholder is completely tax-free. While availing tax benefit under Section 80C by investing in term life insurance, you must know that the premium for policies purchased before April 1, 2012, must not exceed 20 per cent of the sum assured and premium for policies purchased post-April 1, 2012, must not exceed 10 per cent of the sum assured.

Unit Linked Insurance Plan (ULIP)

In the last few years, the revamped version of Unit Linked Insurance Plans or 4th generation ULIPs has gained immense popularity amongst the investors looking for secured investment options under Section 80C. The reduced charges and better transparency are some eminent features that have made ULIPs a popular choice amongst investors with a goal ranging between 5–25 years.

By investing in ULIPs, you can easily save tax under sections 80C and 10(10D) of the Income Tax Act, 1961. Also, the fund value on exiting the policy (allowed after 5 years) or on maturity is completely tax-free.

Child Plans

You may also plan to invest in child plans to maximise your savings under Section 80C as child plans apart from helping you to create a sufficient corpus for your child’s secured future even promises maximum returns. These days, there are over a dozen variants of child plans available in the market that make your investment portfolio robust.

You can start investing in a child plan as early as within 60 to 90 days of your child’s birth. The earlier you invest, the higher will be the returns. You can start with investing in ULIP-based child plans and eventually move to safer-funds to accumulate a bigger corpus.

Under ULIP-based child plans, there are even plans available in the market which offer Waiver of Premium (WOP) benefit. Under this, in case of the sudden death of the parent, all remaining premiums of the policy are waived off and are paid by the insurer.

Total Tax Saving

The amount of tax saved is equal to the amount invested multiplied by your tax rate. For instance, if someone paying 30 per cent tax invests Rs 1.5 lakh in section 80C, the total tax saved will be Rs. 46,800 which includes – Tax Saved @30 per cent + 4 per cent Cess. In these tough times, you must maximise tax savings as by just saving tax, you get returns of 10 – 30 per cent on it plus the returns given by the instrument.

 

The author is CBO-Life Insurance, Policybazaar.com. Views expressed are that of the author.

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