Today, many are worried about the uncertainties in life. Diseases, accidents, and death are some of the causes of worries. Securing the future of your family from these uncertainties is essential. Generally, life insurance is the first step you can take to safeguard your family’s financial requirements.
The income tax deduction is a major aspect of any insurance policy. If you are a regular taxpayer, it is possible to lessen the burden through an insurance plan. Section 10(10d) of income tax law allows you to enjoy tax benefits.
With that being said, let us see more about the tax savings options available under Section 10(10d).
What Section 10(10d) denotes?
The income tax act 1961 backs Section 10(10d) that offers you tax benefits. The tax advantage under this act is that you can receive tax exemptions on accrued bonuses. Further, if you earn returns through life insurance, then it is exemptible under law. Therefore, the life insurance policy is an ideal tax-saving option to receive tax deductions.
The provisions under Section 10(10d)
The tax exemptions under Section 10(10d) are valid if the premium is paid during a single year. The policyholder can avail up to a 20% tax exemption from the total policy amount. There are also exemptions available for premiums made towards life insurance. You can not claim more than 10% tax on life insurance premiums. Furthermore, for life insurance applied after 2013, the exemption limits 15% on accrued bonus.
The eligibility criteria to enjoy tax savings under Section 10(10d)
- Under Section 10(10d), the tax benefit is applicable only if the accrued bonus is available at the demise.
- The payout should be on an annual basis.
- The insurance premium made towards life insurance should not exceed 20%.
- The premium of the insurance policy should not exceed 15% of the total sum.
- The tax benefits are available only if it is a life insurance policy.
- If the insurance is applied after 2012, then the premium should not exceed 10%.
Tax saving options under Section 10(10d)
- The Term Plan
Term plan is a life insurance policy for a specific term or period. A term life insurance provides coverage to the entire family in case of the unfortunate death of the policyholder during the active term of the policy. The insurer will receive tax deductions for the premiums, maturity, and bonus within the term plan. Under Section 10(10d), only the term plan policy is exemptible from taxes.
- The Permanent Insurance
Permanent life insurance is a policy that will not expire after a specific time. The insurance amount is secure till the demise of the policyholder. It is possible to get tax benefits for premiums and maturity amounts. Apart from the tax benefit, it is also an excellent savings plan for the policyholders. Moreover, the dividends of this insurance are not taxable under the law.
Life insurance not only protects the financial future of your family in times of uncertainties but also offers certain tax benefits. It’s an effective tax planning tool that one must consider. Hence, you are advised to choose the right plan before investing in it.