a. Your Income is Taxable
The income that an individual earns every year is subject to the Income Tax laws, as per the Income Tax Act, 1961. The Income Tax rates varies from person to person basis on different income levels, ages, and gender.
To calculate annual income of an individual, Income under the following heads are considered:-
- Income on interest earned
- Income from House property
- Profits and gains of business or profession
- Income from other sources
Income Tax Slab- AY 2016-17
|Annual Income ||Income-Tax Rates |
|Up to 2,50,000 ||Nil |
|2,50,000 – 5,00,000 ||10% |
| 5,00,000 – 10,00,000 ||20% |
| 10,00,000 and 10,000,000 ||30% |
(The above table shows the Income tax slab for Indian resident below 60 years and is subject to change)
b. You can Save tax through your investments:
Every rupee saved is rupee earned. Indian Government currently allows income tax exemptions under different heads if we invest in certain financial instruments:
- Section 80C – Section 80C of the Income Tax Act allows tax exemption on up to 1.5 Lac of your income if invested in select instruments.
- Section 80CCC - Under this section, you get tax exemption on up to 1.5 Lac of your income if invested in select pension products.
- Section 80D - Premium paid on health insurance policies: Under this section, premium payment towards medical insurance is exempted up to 25,000/ for self/ family and also up to 30,000/- for health/medical insurance in respect of parent/ parents of the assesse.
- Sec 10 (10 D) - Maturity proceeds from Life Insurance policies are exempt u/s 10(10D) subject to specified conditions
c. How Life Insurance Plans can help you save maximum tax:
Life Insurance Plans are one of the preferred options for tax savings as they offer protection and long term investments. , Under the Income Tax Act, 1961, life insurance plans enjoy Triple E or Exempt-Exempt-Exempt status which means exemption on investment made-exemption on returns made-exemption on maturity/life cover amount.
You can save around 30 % more by investing in life insurance plans. Assume:
Below given table illustrates the difference between investing in the financial instrument which offers tax saving on investment (80C) and on maturity amount (10 (10D) with those instruments which do not or partially offer such benefits.
Annual Investment Amount: 1, 50,000 || Investment Period: 10 years |
Expected rate of return of 10% p.a. || Income Tax Rate: 30% |
Following table summarizes impact on tax savings with different financial instruments
If You choose an instrument that offers
Total Amount Invested
|| ₹ 15,00,000 || ₹ 15,00,000 |
Amount on Maturity
|| ₹ 26,29,675 || ₹ 26,29,675 |
|| ₹ 11,29,675 || ₹ 11,29,675 |
Tax Deduction on Profit Earned
|| ₹ 3,38,902 || 0 |
Tax Saved u/s 80C Per Year
|| 0 || ₹ 45,000 |
Tax Saved u/s 80C Over 10 Years
F=E*10 || 0 || ₹ 4,50,000 |
|| ₹ 22,90,772 || ₹ 30,79,675 |
Apart from tax saving, Life Insurance policies offer varied benefits such as;
- Life Cover: Life Insurance plans offer lump-sum amount of money for your family in case of an unfortunate events. So it is a simple answer to a very difficult question – how will your family manage financially in case something happens to you.
- Long term disciplined savings: Life insurance policy offers long policy term and helps you prepare for your key life goals with discipline.
- Flexibility: Life Insurance plans offer multiple features that help in adapting the solution to one’s requirements. Options in market-linked or secure returns plan, premium payment term, policy term, premium payment frequency, etc.
Disclaimer: Tax benefits are subject to Disclaimer: Tax benefits are subject to provisions under Section 80C, 80CCC,80D, 10(10D) and other provisions of the Income Tax Act, 1961 and are subject to amendments from time to time. The table showing Tax savings are only illustrative and may vary from person to person depending on several individual factors. We urge you to seek professional tax advice from a qualified tax consultant.