Paying income tax is the duty of every citizen of India. The government uses this collected money to bring out different welfare schemes for the needy and utilizes the same for funding its necessary projects.
The money is also used to pay for the necessary requirements of the country like defense expenses and paying salaries of various government staff. It is the major source of income for the government of India and we can definitely say that the income tax paid by the citizens and corporates is used to run this country by the government.
As per the latest amendments by the government people whose gross income is less than INR 5 Lacs rupees need not to pay any tax on their income. For people earning higher there is a definite slab as per which the individual needs to pay the tax every assessment year. However, to reduce the load on the taxpayers and incentivize them for investing and parking their money in specified tax saving tools, the government has pre-defined certain section in the income tax act 1962.
Deductions allowed under the income tax act are the only legitimate ways of saving tax and thus saving some hard earned money. Salaried employees should declare their investments allowed for deduction as per these sections to the human resource team and submit the necessary documentation as and when required. Self-employed and business people should declare their investment with necessary proof at the time of filing the income tax return.
Firstly we will give a bird eye view for some of such deductions allowed under section 80 as per the law. An individual taxpayer can claim a deduction on his taxable income under section 80 C by investing in Life insurance premium, provident fund, tax saver bank fixed deposits, National saving certificate, Tax saver mutual fund etc. Section 80 CCC provides income deduction to a taxpayer for contribution to any annuity plan provided by life insurance Corporation of India or any private life insurance company.
The annuity plan under which the deduction is allowed must be for receiving a pension as referred to in section 10 (23AAB). This is a good option to save some bucks on income tax especially for people employed in private sector corporate jobs where the concept of employer provided pension is hardly present anymore.
Any pension proceeds, amount received on surrender or accrued interest or bonus paid will be taxable under the act in the year which it is paid. Section 80 CCD mandates the deduction for contribution to pension account. As per section 80 CCE the total deduction which a taxpayer can claim on his taxable income under the sections mentioned above is capped to INR 1.5 Lacs.
Now having given a brief overview that how investing in life insurance premium and buying life insurance products can help in tax saving. We understand well that purchasing insurance not only helps in securing our financial future and protect our near and dear ones in case of any untoward incident but also help us save some amount in income tax.
The title of the article concentrates only on life insurance Corporation of India (LIC) as it is the only public sector insurer and the biggest life insurer on which lot of Indian families has bestowed their trust into as an insurer of their choice but as far as tax saving is concerned the deduction benefit will equally apply if we purchase life insurance from any private player as well who is licensed to do business in India as per the regulator IRDAI.
Thus whether public or private insurance company we deem fit insurance premium paid in the tax assessment year will be eligible for deduction and for the documentation proof the taxpayer should ask the insurer a premium paid certificate whatever the mode and frequency of premium payment may be.
Life insurance products are of many types namely term life, unit linked insurance plans (ULIPS), endowment plans, money back policy, whole life insurance, child plan, retirement plans, annuity plans and more.
Tax can be saved under 80 C by investing in any of the above mentioned products one feels comfortable investing in but as per 80 CCC the investment must be in an annuity or pension kind of a product. Whether you are purchasing the life insurance product from an agent or directly online it is also better to be sure that the insurance product we are looking to buy provides tax benefits under this particular section.
Also the point to be noted here is the tax deduction will be applicable for any premium paid on annuity contribution in the tax assessment year only. Thus say I pay 24k premium annually on two life insurance policies, out of one is 1k EMI per month. Now if I purchased both policies in December 2020, in the assessment year 2020-21, I can claim a tax deduction of 28k.
It is important and imperative to plan purchase of some kind of life insurance we deem fit and necessary as a protection measure in case of financial distress and as a tax saving tool. Now, every individual taxpayer should definitely think of getting the maximum benefit of 1.5 Lacs as per section 80 and out of which 30-50k one should invest in a couple of life insurance products, for sure. This gives us mental peace that even after our life ends.