Once you begin financial planning for your life, savingyour money becomes a priority. But, it can be challenging to manage your expenses when there is no shortage of responsibilities to take care of. Along with that, the tax liabilities in a person’s life seem to add to the burden.
Nevertheless, there are several ways to reduce the financial burden and efficiently use your income. Financial products such as term insurance and health insurance allow certain tax deductions to policyholders on such investments.
You canmake use of an income tax calculator to determine the amount of tax-savings based on your income and investments. It can help you create a sound financial plan to estimate your savings and understand ways to maximize them. But, to use the income tax calculator to your advantage, first, let’s understand how tax benefits work in.
How Do Tax Benefits Work?
When you buy insurance plans, the benefits are not limited to long-term financial security. There are different tax benefits associated with various types of investments. The tax benefits lower an individual’s tax liability by reducing the taxable income.
Depending on the prevailing tax laws, an income tax calculator can allow you to evaluate the tax savings in a financial year. These tax benefits also act as an incentive for people to save their money with systematic investments.
Standard financial tools such as term insurance, health insurance are excellent for availing tax benefits. You can create a safety net against unpredictable circumstances in life and lower your taxable income while doing so.
The amount of tax relaxation may depend on the type and scale of the investment, which can be estimated using an income tax calculator. Let’s look at some common tax deductions that you can benefit from:
- Section 80C
The Section80C of the Income Tax Act, 1961 offers one of the most commonly known tax benefits of term insurance.Under this section, the policyholder can claim deductions of up to Rs. 1.5 lakh for the premiums paid towards the policy.
It can be availed for policies covering yourself, spouse or dependent children, provided that the yearly premiums are not beyond 10% of the sum assured.
You can also avail tax deductions under this section on investments like Public Provident Fund (PPF), fixed-deposits, National Savings Certificate (NSC) and other such tax-saving instruments. You can use the income tax calculator to find out the eligible amount of tax deductions.
- Section 80D
Another common tax deduction that you can assess using an income tax calculator is offered under Section 80D of the Income Tax Act, 1961. Under this section, you can claim deductions on health insurance premiums you pay to keep the plan active.
A health insurance plan for self, spouse, children or parents will be eligible for tax deductions under this section. However, the deduction limits may vary subject to the sum insured amount and other factors. For instance, the limit on tax deductions in higher if the policy in a senior citizen’s name.
When buying a health plan, the income tax calculator can give you a perspective on the amount of tax savings you may enjoy. Furthermore, you can also avail tax benefits under this section with certain term plans.
If your term insurance policy includes healthcare riders such as critical illness rider, surgical care rider, etc., the benefits are applicable. Make sure to enter the details of such investments when using the income tax calculator to have a comprehensive tax saving plan.
- Section 10 (10D)
Under Section 10 (10D) of the Income Tax Act, 1961, the death benefit or the maturity benefit that the policyholder or their family receives is exempted from taxation. A notable point here is that tax deduction is different from tax exemption.
In the above-mentioned scenarios, a person’s taxable income can be reduced if they invest in the tax-saving instruments. But, under this section, the money that is payable as proceeds from the insurance plan is not taxed at all.
There is a possibility that people may miss out on the tax benefits if they are unaware of it. Therefore, make sure to check for the availability of tax benefits and use an income tax calculator to plan your investments accordingly.
Maximize Tax Benefits with Appropriate Investments
When you earn and provide for your loved ones, it is crucial to plan for their future, financially. The tax-saving investments are an efficient way to invest a substantial portion of your income, without feeling burdened by the loss.
For your satisfaction, using the income tax calculator can be helpful to project and plan the investments and safeguard your family’s future. Keeping your financial plan up to date and regularly making the necessary changes can maximize the tax benefits.
