Dual tax benefit with Insurance

Insurance has traditionally been one of the preferred investment options for investors seeking to reduce their tax burden but there are many benefits of insurance that people are not aware of.

·        Health insurance joins the party

Sec 80C has always been the more popular and glamorous tax savings section. People know how much they can save and what kind of investments come under the ambit of Sec 80C. But, last years budgetary provisions brought the limelight on a so-far lesser known tax provision which is Sec 80D. Sec 80D covers premium paid towards health insurance plans. This years budget increased the cap of investments under Sec 80D by Rs 15,000. This covers premium paid towards medical insurance taken on the health of self, spouse and dependent children (max Rs 15,000) and on the health of parents (max Rs 20,000 in the case of parents being senior citizens or Rs15, 000 otherwise).

      So, now when you combine Sec 80C and 80D, you find that you can invest up to Rs 1.35 Lacs which for someone in the highest tax slab converts to an additional savings of almost Rs.5, 099 .

·        Tax treatment at the time of maturity

Tax treatment at the time of maturity when people are taking a decision related to their tax savings investments, they look for tax savings only at the time of investment. But in doing so, they only see the incomplete picture as they do not look at the tax treatment at the time of the maturity of their investments.

      So, in the worst case they end up investing in a plan which does give them tax savings at the time of investment but at the time of maturity, the maturity proceeds get taxed.

      For e.g. - if a person invests Rs. 100 in a plan in which the maturity amount gets taxed, he saves Rs. 33 u/s 80C. Let us assume that after a year, this investment matures and the investment value is Rs. 300 (Growth Rs. 200). If this growth were to be taxed on maturity, he will end up paying Rs 66 as tax. So, the net gain for the investor is much lower.

      Regular premium life Insurance is one of the few tax savings investment options which give you the benefit of tax-free maturity. So, not only do you save tax on your premium payments but you also enjoy tax free maturity benefits.

      Now, that is having the cake and eating it too.