It is that time of the year again when you have to start planning taxation and find lawful ways to save money. The Income Tax Act, 1961 mandates that if you are an Indian citizen under the age of 60, and have a yearly income over INR 5 lakh, you have to pay a tax. However, the Act also allows you to get tax deductions. If you are looking for tax-saving investments, there are quite a few options available in India. 

Insurance plans are one of the best tax-saving instruments in India. Section 80C and Section 80D of the Income Tax Act, 1961 offer tax-exemptions on various insurance policies. However, it is not wise to buy any policy just to save taxes. You need to find an insurance plan that will provide you with the necessary financial protection. 

Section 80C

If you are looking for ways to reduce tax liabilities, you need to learn about Section 80C of the Income Tax Act, 1961. It offers a tax benefit of up to INR 1.5 lakh per year on life insurance policies.

To know where to invest money to save on tax, you must first consider purchasing life insurance policies. Different life plans offer tax benefits under Section 80C. A popular one among them is a term insurance policy. It is a pure life plan that offers a substantial sum assured at an affordable price. If an unfortunate event leads to your absence during the term policy tenure, the insurance provider pays the benefit to your nominees. With term life insurance plans, you have the opportunities to save tax in two ways:

  • Section 80C makes the premium paid for the term policy tax deductible up to INR 1.5 lakh 
  • Section 10 (10D) of the Income Tax Act, 1961, makes the death benefit completely tax- free; so, your nominees can use the entire sum assured

Unit-Linked Insurance Plans (ULIPs) are another life insurance policy offering tax benefits. They have gained prominence in India due to their dual offerings of a life cover and a variety of investment avenues. Section 80C makes the ULIP premium tax-free up to INR 1.5 lakh per year. ULIP’s maturity payout is also tax-exempt under Section 10 (10D) for policies initiated before February 1, 2021. However, for policies bought after or on February 1, 2021, the maturity benefit is taxable at 10% if its yearly premium is over INR 2.5 lakh.

Here, you need to remember a few guidelines. If you bought the term plan or ULIP after or on April 1, 2012, you can get a tax deduction on the premium only if it is not more than 10% of the sum assured. For ULIPs purchased before that day, you can enjoy the tax benefit if the premium does not exceed 20% of the sum assured.

Section 80D

Section 80D of the Income Tax Act, 1961, offers tax benefits for investment options like health insurance policies. If you purchase a health policy for your parents, children, spouse, or yourself, Section 80D offers a tax exemption of up to INR 1 lakh per year. If you invest in health insurance plans for your children, spouse, or yourself, you can get an exemption of up to INR 25,000. However, for senior citizens, the available tax deduction limit is INR 50,000.

With health policies for your senior citizen parents, you can claim a tax exemption of up to INR 50,000. If they are under the age of 60, the maximum tax-deductible limit is INR 25,000. If you and your parents are over 60, and you buy health policies for yourself and them separately, you can avail of a maximum tax exemption of INR 1 lakh.  

With so many investment options available in the form of insurance policies, you can save a lot on tax under Section 80C and Section 80D. When opting for life and health insurance plans, ensure that you find the most suitable ones for yourself and your loved ones.