Every year, the finance minister announces new tax slabs in India. There are now two separate Income Tax systems. Tax breaks are no longer available under the new regime. Tax breaks were available to taxpayers under the previous administration.
What is the Income Tax Slab?
Individual taxpayers will be required to pay income tax based on the slab system into which they fall. Individuals may fall into a different tax bracket depending on their income. As a result, people with higher incomes will have to pay more tax. The slab system was implemented to keep the country’s tax system equitable. The new tax slabs are subject to change with each budget release.
Income Tax Slab for FY 2020-21 (AY 2021-22)
In this new tax slab regime, taxpayers have the OPTION to choose either :
1. To pay income tax at reduced rates under the New Tax slab in exchange for preceding certain allowed exemptions and deductions available under income tax. Or
2. To continue paying taxes at the current tax rates. The assessee can take advantage of refunds and exemptions by remaining in the previous regime and paying tax at a present higher rate.
Things you must keep in mind before opting for the New Tax Slab
Before you choose the new tax slab bracket, there are a few factors you should consider:
• If you are an individual or a member of a Hindu Undivided Family (HUF) and do not have any business income, you can exercise the option on or before for each prior year.
• If you pick the next tax slab regime as your choice as a taxpayer, you cannot modify it during the year. If you withdraw your option for the next tax slab regime and return to the old tax regime, you can choose the new tax slab regime again during the fiscal year.
Role Of Life Insurance For Saving Tax Money And Securing Life
Suppose there is one issue that all taxpayers have in common, how to save taxes with life insurance. Tax planning is an essential component of everyone’s financial planning. We now understand that we may lower our taxable income by investing in tax-advantaged schemes.
The more you invest in tax-advantaged options, the lower your taxable income. Individuals may now discover various tax-saving strategies under various parts of the Income Tax Act, 1961, ranging from PPF, mutual funds, and NPF to tax-saving life insurance products.
1. First, life insurance benefits are tax-deductible under Section 80C of the Income Tax Act of 1961.
Individual taxpayers can deduct up to $150,000 per year under this clause, according to the IRS. This sum is deducted from the individual’s premium for the life insurance plans purchased. As a result, the individual claiming such a deduction must produce documentation of such premium payments in the form of a receipt.
2. Tax benefit In case of a disability
Now, there may be cases where the insured has a disability or where an individual has purchased insurance for a disabled family member. In such instances, the person is only eligible for the Section 80C deduction if the following requirements are met:
• To begin, the disability must be specified and covered by the list of disabilities under Section 80U or the list of terminal diseases under Section 80DDB of the Income Tax Act of 1961.
• Second, the premium paid on the life insurance plans should not exceed 15% of the total insured.
3. Tax benefit on maturity amount received
Section 10(10D) of the Income Tax Act of 1961 addresses the benefits obtained from a life insurance plan. This includes advantages such as maturity, submission, and death. The recipient of the maturity amount benefits from Section 10 tax exemption on such maturity amount (10D). However, this exemption is only accessible if the premium paid meets the following criteria:
• If the insurer obtained a policy before April 1, 2012, the yearly premium paid on the insurance should not exceed 20% of the total guaranteed.
• If the insurer purchased a policy after April 1, 2012, the yearly premium paid on the coverage should not exceed 10% of the total guaranteed.
• The minimum assured amount that the survivor will receive under the policy is referred to as the sum assured.
If the premium paid exceeds 10% of the sum insured, the exemption will be denied, and the income will be fully taxable.
4. TDS on the maturity amount
Section 10 does not apply to some life insurance contracts (10D). In such circumstances, if the maturity amount received is less than $100,000, no TDS is levied. The maturity amount, on the other hand, is fully taxable in the hands of the receiver.
TDS will be taken from the maturity amount if it exceeds 100,000, although it can be claimed when completing the subsequent ITR. The TDS rate on income in the form of profits received or payable on or after September 1, 2019, has been reduced to 5% in the Union Budget 2019.
Best tax saving life insurance policies available in India
1. HDFC Life Sanchay Plus
The HDFC Life Sanchay Plus endowment plan is non-participating and non-linked. This plan assists you in ensuring financial stability for life assured and the life assured’s, family. This endowment policy assists in guaranteeing financial stability for your family at critical life phases such as marriage, parenting, retirement, and other life events.
2. Canara HSBC Oriental Bank Of Commerce – iSelect Star Term Plan
Individuals can benefit from Canara HSBC Oriental Bank of Commerce Life Insurance Co. Ltd.’s Non-Linked Non-Par Pure Risk Premium Life Insurance Term Plan – Canara HSBC Oriental Bank Of Commerce iSelect Star Term Plan. It provides various benefits such as whole life coverage, coverage for a spouse, several premium payment options, a short policy term, and a premium payment term until you reach the age of 60.
In addition, if you outlast the policy term, you have the option of receiving a refund of your premiums.
3. ICICI Pru Guaranteed Income For Tomorrow Plan
ICICI Prudential Life Insurance has launched a new goal-based savings product, ‘ICICI Pru Guaranteed Income for Tomorrow’ (GIFT), which offers policyholders a guaranteed income to help them reach their long-term financial goals. This non-participating savings strategy can minimise the volatility of future income streams greatly.
GIFT is a life insurance plan that emphasises safety and savings while also delivering guaranteed prizes to help people achieve their life goals.
Wrapping It Up
Life insurance plans can be a crucial element of your overall financial plan. This is because a life insurance plan may assist you in ensuring that your loved ones have a stable financial future after you die.
Not only can a life insurance plan assist pay your final needs, but it may also offer financial security for your family by replacing your income or serving as an inheritance for a loved one. To summarise, before investing in tax*-saving insurance products, conduct comprehensive research, examine your financial goals, and invest appropriately.