InvestmentYogi.com | Updated On: March 26, 2014 12:54 (IST) | NDTV Profit

Who doesn’t want to save tax? Tax saving is one aspect of personal finance which always interests us, probably because you get to see the result straight away. There are various categories and areas which help you save tax. Here is one such area explored for you – Insurance.

Let us divide insurance tax deductions into 3 parts – life insurance, pension plans and health insurance.

1) Life Insurance

Life insurance has a sub-set of various products such as term plans, money back, whole life and ulips (unit linked insurance plans). Term plan gives you pure insurance whereas others are a mix of insurance and investment. However, for the purpose of tax, all these are treated equally by the Income Tax department. Tax saving can be done by purchasing any of these plans. The premiums paid by you on these policies can be used for availing tax deduction and hence boost your tax saving options. Here are the details regarding tax deduction on life insurance policies:

Maximum deduction that can be claimed – Rs. 1 lakh

Deduction availed u/s – 80C

Premium payment mode for availing deduction – Cheque or Online transfer

Minimum sum assured for availing deduction – 10 times of premium paid

Maturity value – Insurance tax exemptions state that maturity value upon death is totally tax free u/s 10(D).

The deductions claimed will be added back to income and taxed accordingly, if policies are surrendered or terminated before 5 years of commencement.

2) Pension plans

Pension or annuity plans are different from life insurance in the way they are invested. There are two phases in pension plans – accumulation and withdrawal phase. Tax benefits are applicable only in the accumulation phase where you pay premiums on them. Here is how you can save tax by purchasing pension plans:

Maximum deduction that can be claimed – Rs. 1 lakh

Deduction availed u/s – 80CCC (sub-set of 80C)

Premium payment mode for availing deduction – Cheque or Online transfer

Maturity value – 1/3rd amount tax free and rest 2/3rd will receive regular pension which is treated as income. They are tax free if amount is received upon death.

3) Health insurance or Mediclaim

Health and wealth are the most important aspects of our life. Life is never peaceful when you lack one of these. The importance of having health insurance or mediclaim policies has been stressed again and again by most financial advisors. ‘One medical emergency can ruin your financial life’ is a phrase we often hear in the personal finance space. Buying health insurance also provides tax benefits on the premiums paid on it. These are the benefits provided:

Maximum deduction that can be claimed – Rs. 20,000 for senior citizens and Rs. 15,000 for others. Hence, maximum limit will be Rs. 40,000 if you are a senior citizen and also paying premium for your senior citizen parents.

Deduction availed u/s – 80D

Premium payment mode for availing deduction – Cheque or Online transfer

Maturity value – Tax free for sum received under critical illness policies

InvestmentYogi.com is a leading personal finance portal.

Disclaimer: All information in this article has been provided by InvestmentYogi.com and NDTV Profit is not responsible for the accuracy and completeness of the same.

Source : http://goo.gl/wUN3w8