Insurance - A Tax Planning tool cum Investment Plan

It’s never too late to get yourself insured against the risks of life like financial losses, ailing health and accidents. Planning Insurance is as important as buying Insurance. Buying Insurance has also formed an integral part of an individual's annual tax planning exercise. While it is important for individuals to have life cover and a health insurance, it is equally important that they buy insurance keeping both their long-term financial goals and their tax planning in mind.

Insurances rescue you from all the uncertainties only on a financial level, thereby supporting you and your family during the difficult period. Protections against Life & Medical contingencies are the two most important ingredients of Insurance.

Every year, taxpayers try to save and invest so that they minimize taxes and maximize disposable income. This is where TAX PLANNING comes in. Tax planning, as part of your overall financial planning exercise, helps you figure out how to make full use of the breaks on offer under current income tax rules. Check From the below given slabs how much tax you are liable to pay.

Tax Slab For Salaried Males
Upto 1.1 lakh	NIL	-
1.1-1.5Lakh	10% of income above Rs. 1.1 Lakh	No tax is levied on income upto Rs. 1.1 lakh. 10% will be levied on Rs.40000 (1.5 lakh-1.1 Lakh)
1.5-2.5Lakh	Rs4000 (of the earlier slab) + 20% of the income above Rs.1.5lakh	He has already paid tax on the income upto Rs.1.5lakh. 20% is levied only on 1,00,000 (2.5lakh-1.5lakh)
Above 2.5 Lakh	Rs.20, 000+ Rs.4000 (of the earlier slabs) + 30% of the income above 2.5Lakh	He has already paid tax upto income 2.5lakh. so 30% is levied on the income above 2.5Lakh

Tax Slab For Salaried Females
Up to Rs.1.45Lakh	Nil
1.45 Lakh -1.5 Lakh	10%
1.5 Lakh to 2.5 Lakh	20%+500
Above 2.5 Lakh	30% + 20000+500

The ideal time to plan your taxes is in April, at the beginning of the financial year. But for those who couldn't manage the tax planning then or now don’t have ready funds to nullify your income tax payable, there are still enough investment options that would substantially lighten the burden while deploying funds profitably.

People who want to resort to Tax Planning now will have following questions in their mind:

• Don’t have ready funds to nullify your income tax payable!
You can take up below mentioned options and take up new tax saving plans for tax exemptions as per income tax act.
• Cutting the expenditures and then making the investments is the best option anybody can go for. Under Sec 80C of Income Tax Act, you can claim tax exemption on your savings up to a limit of Rs 1 Lakh. Its might not be possible for many of us to cut down our expenses and arrange for Rs 1 Lakh. The Better option would be to cut your expenses as much as you can and for the rest amount see the next alternative.
• Another alternative that take up a Personal Loan to avail those funds which you can invest in schemes like Life Insurance, ELSS, NSC, PPF etc and claim tax exemptions.

• What are the investment options to lighten the burden of tax while deploying funds profitably?
This explains the role of Life Insurance and Health Insurance in an individual's tax planning exercise while also evaluating the various options available at one's disposal.

1. Life insurance is a guarantee that your family will receive financial support, even in your absence. Put simply, life insurance provides your family with a sum of money should something happen to you. It thus protects your family from financial crisis. In addition to serving as a protective cover, life insurance acts as a flexible money-saving scheme, which empowers you to accumulate wealth-to buy a new car, get your children married and even retire comfortably. Life insurance also triples up as an ideal tax-saving scheme.

As per Income Tax Act, Life Insurance shall include:
• Life insurance premium contributions are eligible for deduction under Sec. 80C.
• Pension plan contributions are eligible for a deduction under Sec. 80CCC.
• The proceeds or withdrawals of our life insurance policies are exempt under Sec 10(10D), subject to norms prescribed in that section.

While taking a Life Insurance Policy you should keep in mind that it should cover both, the investment and tax saving aspects equally. Like those who are confident of carrying the payment of insurance premium for a long time span, will be benefited by applying for pure term insurance schemes as the long tenure of the schemes, serve to reduce the amount of monthly insurance premiums. Various Plans in which you can invest for Life Insurance keeping in mind your needs are:
• Term Plans
• ULIPs
• Pension Plans
• Children Plans
Finally, Life Insurance contracts allow an individual to save money in a tax efficient manner and allow savings to grow to help meet our future financial obligations.

2. Health Insurance is an insurance policy, which covers you and your family against any medical contingency. In short Health Insurance is a protection against medical costs. It is a contract between an insurer and an individual /group in which the insurer agrees to provide specified health insurance cover at a particular premium. The health insurer usually provides either direct payment or reimburses the expenses associated with illnesses and injuries. The premium paid for medical insurance qualifies for rebate under Section 80D as follows:

• Insurance premium paid or Rs 10,000 whichever is lower.
• The aforesaid limit is Rs 15,000, where the individual or his spouse or dependent parents or any member of the family (for whom such premium is being paid) is a senior citizen (i.e. one who is resident in India and who is at least 65 years of age at any time during the previous year).
• The Insurance Regulatory and Development Authority (Irda) has clarified that only the premium collected for providing health cover in the case of unit-linked health insurance policies will be eligible for tax benefits.

3. Various other Plans where in you can invest keeping in mind Investment cum Tax saving are:
• Annual contribution to EPF (employees' provident fund)
• PPF (public provident fund): Only contributions of upto Rs 70,000 per annum are eligible for a tax benefit. Apart from Section 80C tax benefits at the time of investing, interest income from investments in PPF is exempt from tax under Section 10(11) of the Income Tax Act.
• Gratuity: They are exempt subject to conditions and limits laid down in the Income Tax Act.
• National Savings Certificate (NSC): Interest income from NSC investments is chargeable to tax. However, the interest accruing annually is also deemed to be reinvested, hence it qualifies for deduction under Section 80C.
• Tax saving fixed deposits: These are conventional fixed deposits offered by banks; however investments therein (upto Rs 100,000 per annum) are eligible for tax benefits under Section 80C.
• Equity Linked Saving Schemes (ELSS): This is one of several schemes by the mutual funds and is popular among high net worth tax payers because of their unique features
• Fixed Deposit (FD) for minimum 5 years
• Pension Funds
• Being charitable helps you too. Money donated to tax-approved charitable institutions is deductible to the extent of 50%, subject to conditions. Deduction of 100% is available in the case of payment to certain specified funds like Prime Minister’s National Relief Fund.
• Tuition Fees including admission fees or college fees paid for Full-time education of any two children of the assessee (Any Development fees or donation or payment of similar nature shall not be eligible for deduction).
• Infrastructure Bonds issued by Institutions/ Banks
• The rebates associated with a home loan from a tax saving perspective are on the interest paid as well as on the principal repaid. The deduction of interest payable on the loan taken to buy the house property is up to a maximum of Rs. 1,50,000 every year under section 24(b) and the principal portion of the loan repaid to the bank will be eligible for deduction under section 80C (along with other contributions and investments) up to a maximum limit of Rs. 1,00,000.

In our view, investors need to give tax planning a lot more thought and evaluate how they can use the Rs 100,000 tax-saving bounty a lot more fruitfully and judiciously. It would be difficult for anyone to single out one single instrument that is best for everyone. For instance, someone who is risk-averse can opt for life insurance or five-year deposit with a bank. For someone keen on saving tax, even on income arising out of the instrument would prefer PF or PPF. For the young and high net worth, with a good risk appetite can go for ELSS.

Below given are the various Sections under which you claim for Tax Exemptions.
• Section 80G- Deduction in respect of donations to certain funds, charitable etc
• Section 80C- Deduction in respect of life insurance premia, deferred annuity, contributions to provident fund, subscription to certain equity shares or debentures, etc.
• Section 80CCA- Deduction in respect of deposits under National Savings Scheme or payment to a deferred annuity plan
• 80CCB: Deduction in respect of investment made under Equity Linked Savings Scheme
• 80CCC: Deduction in respect of contribution to certain pension funds
• 80CCD: Deduction in respect of contribution to pension scheme of Central Government
• 80CCE: The aggregate amount of deductions under section 80C, section 80CCC and section 80CCD shall not, in any case, exceed one lakh rupees.
• 80D: Deduction in respect of medical insurance premia
• 80E: Deduction in respect of interest on loan taken for higher education
• 80G: Deduction in respect of donations to certain funds, charitable institutions, etc.
• 80GG: Deductions in respect of rents paid

Finally, having made your investments and claimed the tax breaks, don't forget to keep the records and documents of your investments and tax deduction certificates, since you will have to attach them with your returns. As can be seen, the assured return segment has a wide range of investment avenues to offer subject to a maximum limit of Rs.1Lakh. The onus for making the right choice and getting invested in an apt instrument lies with you.

Tenure: The Term plan bought should always be of maximum term because premium remains the same throughout the tenure & also the risk of your life is directly proportional to your age that means more the age more the risk & more is your premium. Therefore you should always buy the Term plan of maximum tenure.

Let’s take an example of Shyam who wants to take a Term plan for a sum assured Of Rs. 15, 00,000.

First case: If at the age of 25 Shyam takes a Term plan from HDFC Standard Life for the tenure of 15 years his annual premium is 3930 & total premium comes out to be Rs 58950. At the end of the tenure Shyam’s age is 40 & he thinks of taking another Term plan again from HDFC for another 15 years at an annual premium of Rs. 6495 where his total premium comes out to be Rs. 97425. Thus taking two Term policies one at the age of 25 another at the age of 40 Shyam’s total premium is Rs. 1,56,375 (Rs. 58950 + Rs. 97425).
Second case: If Shyam at the age of 25 takes a Term plan of 30 years from HDFC Standard at an annual premium of Rs. 4155 then his total premium comes out to be Rs. 124650.

Thus if Shyam would have taken the Term plan for 25 years (tenure) he would have gained Rs. 31725(Rs. 156375 _ Rs. 124650). Thus it is always recommended to get a Term plan of maximum tenure.

Hence we summarize that the Term plan offers death benefit at the lowest premium with the maximum sum assured, Only the mortality charges and the sales and administration expenses are covered. So those who intend to buy only life cover with the minimum premium & maximum life coverage (Sum assured) must go for Term plans but with maximum tenure or term.