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  • Home >
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  • How Will Savings In A Life Insurance Plan Help Reduce My Tax Liability

How will savings in a life insurance plan help reduce my tax liability?

Your savings in Life Insurance not only provide protection to you and your family; they also help you reduce your tax liability.

Investment plans also act as tax-planning tools, as many avenues help reduce tax liability. There are different types of investment plans, and by choosing the right one, you can invest according to your needs and grow your savings.Read Less

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Written ByPalak Bagadia
AboutPalak Bagadia
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Palak Bagadia, Associate – Digital Marketing at Bajaj Allianz Life, with experience spanning content and performance marketing, recruitment, employee engagement in the BFSI industry.
Reviewed ByRituraj Singh
AboutRituraj Singh
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Rituraj Singh,With over 6.5 years of experience in the insurance industry, Rituraj Singh, Manager- Product & Brand Marketing at Bajaj Allianz Life Insurance overlooks new product launches, compliance, and brand projects, leveraging artificial intelligence and technology to enhance outcomes.
Written on: 7th July 2024
Modified on: 7th July 2024
Reading Time: 15 Mins
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Tax Slabs

This explains how the various tax brackets work and how much tax relief we are all eligible for. The new tax structure was initiated on 1st April 2014.

The present tax structure is as follows:

Tax slabs for Financial Year 2014-2015 (Assessment Year 2015-2016

Surcharge on Income Tax:

From Financial Year 2013-14, Surcharge is applicable @ 10% on tax payable in case of an individual if total income exceeds Rs.1 Crore

Education Cess & Secondary & Higher Education Cess on Income Tax

Education Cess @ 2% & Secondary & Higher Education cess @ 1% will be payable on the amount of income tax.

Service Tax

All premiums and charges are subject to applicable taxes including service tax, education cess and secondary & higher education cess as applicable under the prevailing tax laws. With effect from April 1, 2012, Service Tax Rate has been changed to 3.09% on first year premium and 1.545% on subsequent year premium for traditional endowment & annuityA contract sold by a life insurance company that provides fixed or variable payments to a recipient, either immediately or at a future date. products and 12.36% for ULIP, Health Insurance, Term Insurance & Riders. In case of surrender of policies, service tax is charged at 12.36%.

Life insurance policies can be useful tax planning tools, because the policy holder is eligible for tax benefits under the Income Tax Act 1961 (Act). Though there are multiple modes for saving tax, life insurance is one of the most effective tax planning instruments. Plans from Bajaj Allianz Life Insurance can be used for protection, long term savings and tax planning. There are two kinds of income tax benefits available to individuals with respect to long term savings being made in Life Insurance policies:

✓ Deductions u/s 80C/80CCC:

  • Benefit is available to Individual assessee and Hindu Undivided Family assessee.
    • In case of individual assessee – Himself/herself, spouse, children of such individual
    • In case of HUF assessee – any member of HUF
  • If the amount of premium paid in a financial year for a policy is in excess of 20% of the actual capital sum assured, then deduction will be allowed only for premiums up to 20% of the sum assured.
  • For insurance policies issued on or after April 01 2012, deduction is allowed for only so much of the premium payable as does not exceed 10% of the actual capital sum assured. (15% of actual capital sum assured in case of person with severe disability or specified ailment).
  • Above benefits shall be reversed if the policy is terminated/cease to be in force within 2 years for traditional products and 5 years for ULIP products after the date of commencement of policy.
  • Sec 80CCE – Maximum amount of deduction that an assessee can claimNotification to an insurance company that payment of an amount is due under the terms of the policy. under Sections 80C, 80CCC will be limited to Rs.150,000.

✓ Deductions u/s 80D

  • Benefit is available to Individual assessee and Hindu Undivided Family assessee.
  • In case of individual assessee – Himself/herself, spouse, dependent children and parents of such individual
  • In case of HUF assessee – any member of HUF
  • The qualifying amounts under Section 80D for self, spouse and dependent children is upto Rs. 15,000/- and additional deduction upto Rs. 15,000/- for the parents. However, a higher amount of upto Rs. 20,000/- is permitted for parents, if they are senior citizens. Assessee is allowed to make any payment on account of preventive health checkups upto Rs. 5,000 within prescribed overall limit.
  • 80DD: Premiums paid for disabled dependent are eligible for deduction up to Rs. 50,000 every year. A higher deduction of Rs. 75,000 shall be allowed, where such dependent is a person with severe disability.

✓ Exemptions:

  • 10 (10D): Any sum received under a life insurance policy, including the sum allocated by way of bonus. Dividends paid to shareholders from funds created out of additional profits realised by the company. on such policy will be exempt from tax. However, this rule does not apply to following amounts:
  • Sum received under Section 80DD(3), or
  • A sum received under a Keyman Insurance Policy, or
  • Any sum received other than as death benefit under an insurance policy which has been issued on or after April 1 2003 and if the premium payable in any of the years during the term of the policy does not exceed 20% of the sum assured. For insurance policies issued on or after April 01 2012, exemption would be available for policies where the premium payable for any of the years during the term of the policy does not exceed 10% of the actual capital sum assured. (For policies issued on or after 01 April 2013, 15% of actual capital sum assured in case of person with severe disability or specified ailment).

Illustration of Tax Savings possible is as under:

*Calculations are based on highest tax benefits.

**These calculations are illustrative and based on our understanding of current tax legislation.

Disclaimers

  • The above are extracts from the Income Tax Act’1961. Please note that tax laws are subject to change and hence before placing reliance on the above, the latest version of the above section should be checked. It should also be noted that the change in tax laws could have retrospective effect also.
  • This information should not be construed as expert tax, legal or investment opinion from Bajaj Allianz Life Insurance Company Limited. Bajaj Allianz Life Insurance Company Limited would not be responsible in any manner for decisions made on the basis of above information.
  • Please consult your tax advisor for claiming tax benefits on insurance products.
  • Sec 194DA of Income Tax Act 1961 provides for deducting tax (TDS) on policyholders payout under life insurance policy w.e.f. 01 Oct 2014. TDS if applicable will be deducted at 2% if valid PAN is available. In case valid PAN is not available, rate of TDS would be 20%.

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Disclaimers:
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~Tax benefits as per prevailing Income tax laws shall apply. Please check with your tax consultant for eligibility.

The above information is for general understanding and is meant to educate the general public at large. The reader will have to verify the facts, law and content with the prevailing tax statutes and seek appropriate professional advice before acting on the basis of the above information. 

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Disclaimer

*Tax benefits as per prevailing Section 10(10D) and Section 80C of the Income Tax Act shall apply. You are requested to consult your tax consultant and obtain independent advice for eligibility before claiming any benefit under the policy.

~Individual Death Claim Settlement Ratio for FY 2023-2024

1Premium Holiday has to be selected at inception to avail this benefit and also depends on other policy terms & conditions


Bajaj Allianz Life Insurance Co. Ltd. | IRDAI Reg. No. 116

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Terms & Conditions

I hereby authorize Bajaj Allianz Life Insurance Co. Ltd. to call me on the contact number made available by me on the website with a specific request to call back. I further declare that, irrespective of my contact number being registered on National Customer Preference Register (NCPR) or on National Do Not Call Registry (NDNC), any call made, SMS or WhatsApp sent in response to my request shall not be construed as an Unsolicited Commercial Communication even though the content of the call may be for the purposes of explaining various insurance products and services or solicitation and procurement of insurance business

 

Please refer to BALIC Privacy Policy

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Disclaimer

%%Above illustration is for Bajaj Allianz Life eTouch- A Non Linked, Non-Participating, Individual Life Insurance Term Plan (UIN: 116N172V03) considering Male aged 25 years | Non-Smoker | Policy Term (PT)– 30 years | Premium Payment Term (PPT) – 30 years | Sum Assured opted is Rs. 1,00,00,000 | Online Channel | Standard Life | 1st Year Premium is Rs. 6,238. 2nd Year onwards premium is Rs. 6,659. Total Premium Paid is Rs. 1,99,349 | Medical Rates | Yearly Premium Payment Mode | Death benefit opted is lumpsum payout and monthly installments (Lumpsum Payout Percentage : 45, Income Payout Percentage : 55) | Premium shown above is exclusive of Goods & Service Tax/any other applicable tax levied, subject to changes in tax laws, and any extra premium and is for illustrative purpose only. This is inclusive of all the discounts mentioned above.

##Tax benefits as per prevailing Section 10(10D) and Section 80C of the Income Tax Act shall apply. You are requested to consult your tax consultant and obtain independent advice for eligibility before claiming any benefit under the policy.Above Tax benefit is calculated considering deduction of Rs. 150,000 and applicable tax rate of 31.20%.

@Term Insurance plan bought online directly from Bajaj Allianz Life Insurance has no commissions involved.

^^The Return of Premium amount is total of all the premiums received, exclusive of extra premium, rider premium and GST & /any other applicable tax levied, subject to changes in tax laws
Bajaj Allianz Life Insurance Co. Ltd. | IRDAI Reg. No. 116

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Disclaimer

Bajaj Allianz Life eTouch- A Non Linked, Non-Participating, Individual Life Insurance Term Plan (UIN: 116N172V04)

*Tax benefits as per prevailing Section 10(10D) and Section 80C of the Income Tax Act shall apply. You are requested to consult your tax consultant and obtain independent advice for eligibility before claiming any benefit under the policy.Above Tax benefit is calculated considering deduction of Rs. 150,000 and applicable tax rate of 31.20%.

~Individual Death Claim Settlement Ratio for FY 2023-2024

1Premium Holiday has to be selected at inception to avail this benefit and also depends on other policy terms & conditions


Bajaj Allianz Life Insurance Co. Ltd. | IRDAI Reg. No. 116


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Disclaimer

*Above illustration is for Bajaj Allianz Life eTouch II - A Non-Linked, Non-Participating, Individual Life Insurance Term Plan (UIN:116N198V01) considering Male aged 25years | Non-Smoker | Policy Term(PT)– 30 years | Premium Payment Term (PPT)– 30 years | Sum Assured opted is Rs.1,00,00,000 | Online Channel | Standard Life | 1st Year Premium is Rs. 5,092. 2nd Year onwards premium Rs. 5,520. Total Premium Rs. 1,65,172 | Medical Rates | Yearly Premium Payment Mode | Death benefit opted is lumpsum payout and monthly instalments (Lumpsum Payout Percentage: 40, Income Payout Percentage: 60). Income payout instalment opted for 40 years | Premium shown above is inclusive of Online Discount only, no other discounts have been considered and exclusive of Goods & Service Tax/ any other applicable tax levied, subject to changes in tax laws, and any extra premium and is for illustrative purpose only. For more details on risk factors, terms and conditions please read sales brochure & policy document (available on www.bajajallianzlife.com) carefully before concluding a sale.

##Tax benefits as per prevailing Section 10(10D) and Section 80C (under old tax regime) of the Income Tax Act shall apply. You are requested to consult your tax consultant and obtain independent advice for eligibility before claiming any benefit under the policy.Above Tax benefit is calculated considering deduction of Rs. 150,000 and applicable tax rate of 31.20%.

**5% Discount applicable for customer's first individual life insurance policy, applicable only on first year’s premium. 5% Discount for salaried customers, applicable only on first year’s premium. 6% Discount on online purchase is available for regular premium payment and limited premium payment frequency on first year's premium.

$Term Insurance plan bought online directly from Bajaj Allianz Life Insurance has no commissions involved.

^^The Return of Premium means total of all the premiums paid under the base product, excluding any extra premium and taxes, if collected explicitly.

Bajaj Allianz Life Insurance Co. Ltd. | IRDAI Reg. No. 116

X
Terms & Conditions

I hereby authorize Bajaj Allianz Life Insurance Co. Ltd. to call me on the contact number made available by me on the website with a specific request to call back. I further declare that, irrespective of my contact number being registered on National Customer Preference Register (NCPR) or on National Do Not Call Registry (NDNC), any Call made, including via Voice over Internet Protocol & WhatsApp, SMS or WhatsApp messages, in response to my request shall not be construed as an Unsolicited Commercial Communication even though the content of the call may be for the purposes of explaining various insurance products and services or solicitation and procurement of insurance business

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