Insurance policies have been a very popular and traditional tax saving tool considered by the majority of people. Around 70 percent of the overall insurance products are sold in the quarter from January to March.
While insurance policies to give tax benefits up to Rs one lakh under Section 80C of the Income Tax Act. Below are some facts to consider while taking life insurance premiums to save tax:
All insurance payments are not tax-free
Majority of people are not able to understand that all insurance payments are not tax-free. Generally, people end up purchasing so many unwanted insurance policies online just to save tax. In fact, many insurance agents may not disclose this fact to their clients and hence, a lot of mis-selling happens in this sector.
Life insurance premium is exempt from tax only for up to a maximum of Rs one lakh under Section 80C of the Income Tax Act.
Section 80C encompasses investments from each source including health and term insurance premiums, PPF investments and pension plans to a ceiling of Rs one lakh per annum. Individuals who are paying more than one lakh for different plans the apparent tax benefits may not be available.
Change in Tax Deduction Eligibility Law
The change in law with the introduction of the Direct Taxes Code has laid down stiff conditions for deduction of premium from taxable income from insurance plans. According to new regulations, any insurance plan offering life coverage below 10 times of the annual premium is not eligible for tax deduction.