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I work as an IT professional in Bengaluru. I fall under the 30 per cent tax bracket and have a family floater health insurance policy that covers my wife and 5-year-old child. Additionally, I have a senior citizen health plan for my mother. Last year, I invested in a child investment plan from a reputed insurer. How can I claim tax benefits for my insurance and investment? Please explain.
Dhruv
It’s heartening to note that you have been prudent enough to purchase health insurance and a child plan. You can claim tax benefits for these plans if you’ve chosen the old tax regime. Let me explain how you can do that and what additional insurance and investment options people in your tax bracket can consider.
Tax benefits under Section 80D of Income Tax Act
Health insurance
Since you’re paying a premium for self, family, and parents, you can claim a tax benefit of up to ₹75,000 under Section 80D of the Income Tax Act. Here’s how: You can claim up to ₹25,000 for self, spouse, dependent children, or parents. For premium paid towards parents who are senior citizens (60 years and above), the limit extends to ₹50,000.
I would also recommend that you have an adequate sum insured for a more comprehensive coverage. Bearing significant medical expenses out of pocket can potentially drain one’s savings. For your family floater plan, you should have at least ₹50 lakh to ₹1 croresum insured. Also, do consider important health insurance riders, such as consumables cover, critical illness cover, and personal accident cover, if you don’t already have them.
Tax benefits under Section 80C and 10(10D) of the Income Tax Act
In totality, you claim up to ₹1.5 lakh under Section 80C, let me explain how.
Child plans
For your investment in a child plan, you are eligible for tax exemption under Section 80C of the Income Tax Act, as per the old regime. The premium paid towards Child Plans qualifies for a deduction of up to ₹1.5 lakh from your total taxable income.
Education inflation is almost twice the inflation rate. So, I would urge all the parents reading this to consider investing in a Child Plan for their children; it’s one of the most effective ways to combat the rising costs of education in India.
Term insurance
Term Insurance is one protection tool that everyone should consider, especially in a country such as India where the mortality protection gap stands at around 91 per cent. Term insurance provides coverage for a predetermined period, such as 10, 20, or 30 years. If the insured dies within this period, the policy pays out a death benefit to the designated beneficiaries. Under Section 80C of the Income Tax Act of 1961, taxpayers can avail of a maximum exemption of up to ₹1.5 lakh annually. The sum assured received by dependents is also completely free from any tax liability.
Unit Linked Insurance Plan (ULIP)
If you want to maximise your savings under Section 80C of the Income Tax Act, you can also consider ULIPs. ULIPs are becoming increasingly popular amongst Indians who want the security of an insurance product and also seek high market returns on their investment.
These products are a unique mix of insurance and investment with a minimum lock-in period of 5 years. Premiums paid by you are allocated between life insurance and equity investments. ULIPs help you future-proof your long-term financial goals such as retirement, paying off loans, or buying a house. The Waiver of Premium feature (WOP) has also added to the allure of ULIPs and contributed to their growing popularity. Under this feature, the insurer continues to pay your premiums in the unfortunate event of the policyholder’s demise. This ensures that the investment goals aren’t affected. It’s important to note that this feature is not built-in, and you have to opt for it.
You can save on taxes under Sections 80C and 10(10D) of the Income Tax Act, and the fund value upon policy exit or maturity after five years is entirely tax-free.
The writer is Joint Group CEO, PB Fintech
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