Tax Season Alert: Maximize Savings with Aviva Life Insurance
As tax season approaches, many individuals actively seek ways to minimize their tax liabilities and fortify their financial security. Life insurance presents a dual benefit, offering both financial protection and valuable tax-saving advantages. If you’re contemplating investing in an insurance plan, now is an opportune moment. Protecting your loved ones’ future can also unlock tax deductions that could alleviate financial strain.
Here’s how a Life Insurance Policy can optimize your tax planning:
1. Tax Deductions on Premiums Paid
A substantial tax-saving benefit of life insurance is the deduction available under Section 80C of the Income Tax Act, 1961. Premiums paid towards a life insurance policy qualify for a deduction of up to Rs. 1.5 Lakh annually. This deduction applies if the premium amount does not exceed 10% of the sum assured. For Term Insurance plans, the entire premium paid is also eligible for this deduction. Tax deductions are also available for Unit Linked Insurance Plans (ULIPs), under Section 80CCC, which shares the same limit as 80C.
2. Tax-Free Partial Withdrawals from ULIPs
ULIPs provide tax-efficient investment options, offering market-linked returns and tax benefits. Plans like the Aviva Signature Investment Plan – Platinum can enhance these advantages by growing your wealth while securing your family’s future.
Consider Rohit, who wants to build wealth and secure his family’s future. He invests Rs. 2.5 Lakh per year in the Aviva Signature Investment Plan – an individual Unit Linked, Non-Participating Life Insurance plan. He benefits from:
- Tax Deduction on Premiums: His premium payments qualify for deductions under Section 80C, reducing his taxable income by Rs. 1.5 Lakh annually.
- Tax-Free Partial Withdrawals: After 5 years, he can withdraw money without tax liability.
3. Tax-Free Maturity Benefits
A key advantage of life insurance plans, including ULIPs, is the tax exemption on maturity benefits under Section 10(10D). Key conditions to qualify for tax-free maturity benefits are that the total premium paid should not exceed 10% of the sum assured. For policies issued after February 1, 2021, the total premium across all ULIPs should not exceed Rs. 2.5 Lakh annually. If these conditions are met, maturity proceeds from your life insurance plan are completely tax-free!
For those whose ULIP premiums exceed Rs. 2.5 Lakh, the tax treatment depends on the type of fund:
- Equity-oriented funds: Gains up to Rs. 1 Lakh are tax-free, and anything above that is taxed at 10%.
- Debt-oriented funds: Gains are taxed at 20% with indexation benefits.
This tax-efficient feature makes life insurance an attractive long-term investment option for wealth creation.
4. Tax-Free Death Benefit
The primary reason for purchasing any life insurance policy is to provide financial security to your family. In the unfortunate event of a demise, the death benefit received by your nominee is 100% tax-free under Section 10(10D).
5. Tax Benefits with Aviva Signature Investment Plan-Platinum
If considering a ULIP like Aviva Signature Investment Plan-Platinum, another tax advantage awaits. Upon maturity, 60% of the invested corpus is tax-exempt under Section 10(10A). This makes life insurance-linked pension plans a smart choice for retirement planning, helping create a tax-free retirement corpus.
Why Tax Savings Shouldn’t Be the Only Goal?
Prioritizing comprehensive coverage is crucial when selecting insurance. While tax deductions are beneficial, the primary objective of insurance should be to provide financial security during unforeseen events.
For example, Rohit, a 38-year-old IT professional earning Rs. 30 lakh annually, invests in a Term Insurance plan with an annual premium of Rs. 75,000 to optimize tax liabilities. Under Section 80C, premiums paid towards life insurance policies are eligible for tax deductions up to a maximum limit of Rs. 1.5 lakh per year.
Several years later, Rohit was diagnosed with a critical illness that hindered his ability to work. Fortunately, his Aviva Signature 3D Term Plan – Platinum included a Critical Illness Rider, which provided a lump-sum payout. This payout helped cover his medical expenses and maintain household finances during this period. This highlights the importance of focusing on comprehensive coverage rather than just tax benefits.
More Reasons to Consider, Beyond Tax Benefits:
- Early purchase = lower premiums: Starting a plan in your 20s or 30s secures lower premiums for a longer duration.
- Protection for your family: Having your own life insurance is essential, as a group insurance policy from your employer may not be enough.
- Long-term financial planning: Investing in life insurance early aids in building a solid plan while providing tax savings.
As the financial year nears its end, seize the opportunity! Investing in life and term insurance is about securing your future, not just for tax benefits. Choose a plan that both reduces your tax liability and aligns with your financial goals.
Aviva Life Insurance offers diverse life insurance plans tailored to your needs. Explore these plans today and take control of your financial future.
*Standard T&C Apply **Tax benefits are subject to change in prevalent tax laws. ***Disclaimer: The content is generic and for informational purposes only. Please consult an expert before making related decisions. ****Insurance is the subject matter of solicitation. For more information on benefits, exclusions, limitations, terms, and conditions, please read the sales brochure/policy wording carefully before concluding a sale.
