Tax saving or earning tax free income is what we all want to maximize. And any small advice that helps us save tax is welcome. But often in this mad rush to save taxes we end up taking impulsive actions.
One such tax saving instrument is life insurance. Almost everyone invests in one but unfortunately surpassing the prime purpose that of protecting the future of your family. A life insurance policyis solely there to cover all the current expenses of a family incase of death of the breadwinner of the family.
But this life saving instrument is often misinterpreted and treated as a tax saving tool. Life insurance premiums can be claimed as an income tax deduction at the time of filing your taxes. Moreover, the lump sum received at the end of the maturity period is tax free under Section 10 (10D),provided the premiums paid are up to 10% of the sum assured.
Let’s assume you bought a life insurance policy of Rs 1 lakh 20 years ago. And you have been paying a premium of Rs 5000 every year which earns you an income tax deduction under Section 80C.
At the end of the 20 years you will receive a sum of Rs 220000 that ncludes your coverage and additional bonus and this amount is completely tax free under Section 10 (10D) as the premium paid is not more than 10% of the sum assured.
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