Many in India Still Think That Insurance is an Avoidable Expenditure

The insurance sector has only 2% penetration in Indian market largely to the fact that Indians see it as an avoidable expenditure. Many in India don’t see the urgency to get insurance policies. A majority of Indians still reside in rural areas or lesser developed towns where awareness is restricted. Large percentage of illiteracy still prevails in major parts of India. In order to penetrate deeper in the Indian market the insurers need to spread awareness among the ‘centers of influence’ i.e. the ‘village sarpanch’ in case of villages. Centers of influence can be different for different people. People mostly get influenced by people on whom they have trust. For some they can be their family and friends as well. Many people in India still don’t bother to buy essential insurance policies like health insurance. Reasons can be many but one of the most common reasons is that people don’t find the urgency to buy an Life insurance policy. India is still a developing country and there is large inequality of income spread. A large number of people somehow manage to pay bills and any money left after paying bills is mostly spent on leisure or savings in banks (mostly). Having an insurance policy like term insurance or health insurance is still thought of as a luxury. It is seen in case of motor insurance that people in order to avoid challahs or fine get only third party insurance as it is mandatory. They don’t take comprehensive motor insurance policies that cover their own vehicle as well. The whole ideology is to save or avoid paying premium even if they are exposed to a higher financial risk. Many people mostly in second and third tier cities where traffic checking is less strict than a city like Delhi don’t even bother to get third party or liability insurance done for their vehicles. The defaulters are obliged to be penalized heavily. Still, in order to avoid paying premium they don’t get it done. And there are many others who still don’t trust that their claim would be paid by the insurance company when the need arises. Maybe they have seen or witnessed cases where claims have been rejected by companies. There can be faulty or fraudulent claims by the policyholder.

Although the scenario has been changing post liberalization with the advent of many private players in the Indian Insurance market space there are still paths left to be unblocked. Some of the world’s largest and most reputed insurance companies partnered with Indian corporate houses have ventured in India. They have brought international expertise and know how in the country. With aggressive advertising and transparent disclosures the insurance industry is expanding. It is still in a very nascent stage. There have been major alterations and modifications in handling the various intermediaries in the insurance sector to make insurance selling fairer and more convenient. The easier accessibility of the internet and rage to buy everything online among the masses has seen the birth and exponential rise of online insurance policies being offered by various insurers.

A lot of awareness and trust is still to be spread among the Indian masses to encourage them to be adequately insured. Insurance is an extremely importance risk management tool. Not being insured or being underinsured is a major risk. Being adequately insured gives a person a sense of self sufficiency and confidence to face adversities. This message has to be scribbled in the Indian psyche. Insurance is not a mere tax saving scheme rather it is the most trusted confidant that would come to aide in the most desperate times. With more education and fair trade practices one can hope to see a fair insurance market penetration in the country in times to come.

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Tax-Saving Options that Save Tax and Grow Your Wealth

If you are reading this, you are likely to be someone whose income exceeds the threshold of Rs 2.5 lakhs for paying taxes. There are some legitimate ways of saving taxes and the good thing is that most of them also help you grow your wealth. These options usually have a lock in period and vary in the nature and amount of return they provide. You must also remember that each of these alternatives also serve specific purposes and tax saving is not the purpose but an ancillary benefit of that.

What is pre-determined and what is optional. EPF, Home Loan repayment and Tuition Fees are pre-determined. Add them up and see how much of your 1.5 lakh limit is utilized.

ELSS Tax Saving Mutual Funds

ELSS or Equity Linked Saving Schemes are a kind of equity-linked mutual funds.  As they invest in equity or stocks, ELSS funds have the ability to deliver superior returns - 14-16% over the long term. That’s a full 6-8% above inflation. This return is not guaranteed though but historical evidence suggests that these returns are achievable over the long term.

Public Provident Fund

PPF is a good option if you are looking for an option with certain returns.

Your PPF investments earn interest at a rate announced every year – currently 8.7%. PPF return is therefore mostly at par with inflation. However, it is tax-free and you can do a lump sum or small regular investments.

The duration of a PPF account is 15 years which is extendable by 5 years at a time. You cannot withdraw money from your PPF account except under certain conditions but not before 5 years.

You can invest in PPF through a bank or Post Office. Ability to invest online is limited.

Life Insurance Premium

This was almost the default Tax Saving Plans option for years, however, over the last few years; most informed investors have learnt the perils of choosing this option

There are 2 kinds of Life Insurance Policies:

Pure risk also called term life which ensures a risk to the life of the insured

Risk+ investment: which pay you back money over time

While pure risk life insurance is something everyone with a dependent must have, it’s not an investment. Life insurance is an expense- something you pay to ensure that your dependents are not left stranded should something unfortunate happens to you.

National Pension Scheme

National Pension Scheme is a lot like investing in mutual funds with its Safe, moderate and Risky options. The returns are not guaranteed.

You cannot withdraw until 60 and the corpus amount must necessarily be invested in an Annuity. The withdrawals are also taxable.

Pension Funds

Pension funds are designed to provide you with an income stream post retirement. They come in two flavors: Deferred Annuity and Immediate Annuity.

For deferred annuity plan, you invest annually until your retirement. Once you reach your retirement, you have can withdraw up to 60% of your accumulated corpus and have to re-invest the remaining in an annuity fund which will give you a monthly pension.

When it comes to immediate annuity plans, you invest a bulk amount one-time and get monthly pension from the next month itself. You would typically use these to invest your retirement corpus.

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Before Buying Insurance Policy to Save Income Tax

Premiums paid towards these insurance plans buy you protection. What’s more – you can also get tax benefits on the maturity amount/returns from insurance plans. For employees Jan-Feb is season of submitting income tax proof.  Many people buy insurance policy, in a hurry, to save tax and submit the proof to employer. Buying an insurance policy is a long time commitment, similar to marriage. So It is advisable to understand all aspects of claiming tax benefit in buying insurance policy.  Let us examine these aspects in detail as per current income tax laws.

What is tax benefit available for insurance policy?

Any amount paid to an insurer to buy or to keep a life insurance policy in force can be claimed as a deduction from gross total income by the policy holder. So premium paid for a life insurance policy can be deducted from gross total income before arriving at taxable income subject to certain conditions.

Life insurance plans are eligible for Best Tax Saving Plan deduction under Sec. 80C. Deduction benefit up to Rs 1.5 lakh under Section 80C.  Section 80C relates to deduction allowed under investments in instruments like PPF, insurance and pension policies.

Pension plans are eligible for a tax deduction under Sec. 80CCC. Deduction benefit up to Rs 1.5 lakh under Section 80CCC.

Health insurance plans/riders are eligible for tax deduction under Sec. 80D. You can get a tax deduction of maximum Rs 25,000 on the health insurance premium for self and family. If you are a senior citizen, you can claim tax deduction on the premium of up to Rs 30,000.

Combined Limit of deduction under Sec 80C & 80CCC & 80 CCD is Rs 1, 50,000.

The proceeds or withdrawals of our life insurance policies are exempt under Sec 10(10D), subject to norms prescribed in that section.

Who can get the tax benefit on premium paid for a life insurance policy?

On whose name should the life insurance policy be to claim the tax benefit?

An individual can only claim tax benefit under Section 80C of the Income tax Act, 1961, on life insurance policy(s) bought in the name of self, spouse or children. You can buy a life insurance policy for any number of your children irrespective of whether they are minor, major, married, unmarried or adopted. A policy taken in the name of any other person won’t be eligible for any tax benefits. So life insurance premium paid by you for your parents (father / mother / both) Brother, Sisters or your in-laws is not eligible for deduction under section 80C.

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Tax Saving Plans

How to save taxes as a salaried individual?

Salaried individuals are one class of people that have to pay maximum taxes in our country. This often leads to disappointment among salaried individuals. Of course, who would be happy knowing that half of the hard earned income has been deducted in the form of taxes? But with the right tax planning strategies, it is possible to save your income from tax liabilities. Here are few ways that will help you save taxes as a salaried individual.

Restructure your salary: We often spend money from our own account on expenses which are actually company’s or employer’s requirement. For example, if you wear a uniform for your job’s sake or talk to a client with your own mobile phone. Such expenses should be certainly covered by your employer. Ask for the restructuring of your salary, if you are the one who is paying for the following expenses.

Some allowances which save tax

Conveyance

Newspaper, Books and Magazine

Medical Treatment

Uniform

Telephone and Mobile

Office Entertainment

Make use of section 80C: Under section 80C, you can avail a maximum tax deduction of Rs 1 lakh by investing in any of the following options

ELSS(Equity linked saving scheme)

Public provident fund

Life insurance policy

Fixed deposits

National saving certificates.

Save tax on rent payment: You may be working outside your city and do not have a company accommodation. Expenses on rent payment should be deductible from your taxable income. House rent allowances include 25 % of the total income. However, the deduction will not be allowed if you own a residential house in that location.

Reimburse travel and medical expenses: Personal expenses such as travel and medical are also tax deductible. Although you will be required to provide proper receipts and bills in order to claim the deduction. Deduction, under this category, is limited up to Rs 15,000.

Tax saving from home loans: As a salaried individual, you will always consider a home loan option before buying a house. In such case, do not forget to take into account tax deductions which are applicable to both principal payments as well as interest payment. Section 80C offers deduction up to Rs 1 Lakh on principal component of your home loan.

Apart from considering all the above Tax Saving Plans options, consult a professional tax planner to avoid any last minute hassle. It is important to start your tax planning well before 31st March and to file your returns before the 31st of July each year.

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Best Tax Saving Plan