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I Save Most Of My Taxes, And So Can You!

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There are a variety of life insurance plans to meet all kinds of needs and preferences. When someone selects permanent life insurance versus temporary life insurance, there is a major decision to be made based on their long- and short-term needs.
The financial world is always changing to adapt to the evolution of the world, which also means something new is always happening without the individual being aware. Those in the higher echelons of society are well aware of how income tax works.
But there is often a low level of literacy about such matters in India. For them to understand this, we should explain what precisely taxation is, and what it is for the upcoming year. Getting this information will allow a person to understand what the tax system is and how the government plans on using it.

Why Choose Life Insurance Plans?

When you are not around, life insurance plans protect the financial interests of your family. It is difficult to put into words the reasons for which millions of people buy life insurance. An effective financial plan should incorporate this policy due to its following advantages; Most people use life insurance to provide money to beneficiaries who would suffer a financial hardship upon the insured’s death.
However, for wealthy individuals, the tax advantages of life insurance, including the tax-deferred growth of cash value, tax-free dividends, and tax-free death benefits, can provide additional strategic opportunities.
For you to save as much as possible of your income in India, you must pay close attention to the available tax-saving financial products. The sections 80C, 80CCC, and 80CCD allow salaried professionals to save tax. I use the following benefits to save money on taxes:

1. Deduction under Section 80C

Tax savings are available to Indian residents under these three sections. They can claim certain deductions if they have invested their money in the instruments listed in Sections 80C, 80CCC, and 80CCD. PPF Accounts, Pension Plans, Life Insurance Policies, NSC Plan (National Savings Certificate), 5 Year Tax Saving Fixed Deposits, and so on are some of the instruments that people invest in.
Citizens can claim a maximum of Rs.1,50,000 in deductions under one or more sections. People who invest in National Pension Schemes can also claim an additional Rs.50,000 deduction under Section 80CCD.

2. Exemption under section 10(10D)

Tax-free is any benefit received in connection with a life insurance policy under section 10(10D) of the Income Tax Act. Additionally, the bonus on such policies is included in the amount.

3. TDS on life insurance policy

The TDS for a life insurance policy is typically deducted at maturity, but it may not be the same for everyone. Below is a list of all of the sections and provisions of the TDS that apply to life insurance.
The Income Tax, 1961, Section 10(10)D, disallows personal income taxation on certain insurance policies, such as life insurance and term insurance, provided. the policies were issued on or before 31st March 2012, and the premium paid for the policy exceeded five times the sum assured.
If the sum insured under a life insurance policy exceeds Rs. 1,00,000 in a single year, the exceptions listed under section 10(10D) do not apply. A maturity amount for a life insurance policy will be taxable in such a situation. TDS is deducted from the maturity amount as per Section 194DA.
The maturity amount will be provided to you by your insurance company after the relevant TDS is deducted if you fall into one of the mentioned deduction brackets. Ensure you review the exception provisions of your insurance policy and calculate the deducted amount in advance to avoid confusion.

Tax liability of single premium insurance policies

The general perception is that life insurance policyholders have to pay the insurance premium every month to keep the policy active. In contrast, single premium life insurance policies (SPLI) only require a single premium to cover the full term of the policy. Policy terms can range from 5 to 10 years. These policies offer similar savings benefits and protection as regular premium policies.
If you’ve purchased a single premium life insurance policy, you may wonder whether the premium is deductible under Section 80C like regular premium policies. Is there a tax-free payout on the maturity proceeds? If you do not meet certain conditions, you won’t be able to the benefits of SPLI policies.

New Tax Slab (FY 2021-22)

The income tax act of India imposes income taxes on individuals, HUFs, partnerships, limited liability partnerships, and corporates. The slab system in India is used to tax individuals whose income exceeds a certain limit known as the basic exemption limit.
The government announces the income tax slabs every year. The income tax regime is currently split into two parts. Tax benefits are no longer available under the new system. Before, taxpayers were able to claim tax benefits.
Individual taxpayers pay tax according to a slab system under the Indian Income-tax. According to a new tax slab, different tax rates are applied based on the income range. As the income of the taxpayer increases, the tax rates rise as well. The country’s tax structure can be progressive and fair with this type of taxation.
If they are willing to forgo certain exemptions or deductions available under income tax, they will be able to pay income tax at lower rates according to the New Tax Slab. The assessee may continue to pay taxes at the existing tax rates and can be eligible for rebates and exemptions by staying in the old regime and paying higher tax rates.
Income Tax Slab
New Regime Income Tax Slab Rates FY 2020-21
(Applicable for All Individuals & HUF)
Rs 0.0 – Rs 2.5 Lakhs
NIL
Rs 2.5 lakhs- Rs 3.00 Lakhs
5% (tax rebate u/s 87a is available)
Rs. 3.00 lakhs – Rs 5.00 Lakhs
Rs. 5.00 lakhs- Rs 7.5 Lakhs
10%
Rs 7.5 lakhs – Rs 10.00 Lakhs
15%
Rs 10.00 lakhs – Rs. 12.50 Lakhs
20%
Rs. 12.5 lakhs- Rs. 15.00 Lakhs
25%
> Rs. 15 Lakhs
30%
Compared to the old tax regime, the new tax regime has lower tax rates.

Bottom Line

Now that you know some of the ways to save on your taxes, you can consider a few other factors when purchasing life insurance plans. First, think about whether or not you need it. If you don’t, and you still want to save money on your taxes, investing in instruments where you do have money at risk (as opposed to insurance) may work for you.
On the other hand, if you have many dependents who will be financially disadvantaged with your death and without your tax benefits, purchasing life insurance may be the best way to guarantee that those tax breaks are passed on to those who could benefit from them the most.