Will You Have To Pay Tax On Life Insurance? The New Tax Laws In India

Restructuring of the income tax system by the India government now has taxpayers rethinking their financial approaches. There is a lot of interest in examining life insurance, mainly during tax seasons, when people buy it mainly for tax savings. It’s important to realise the impact the new tax rules have on your current and future life insurance plans.

Evaluating Life Insurance In The New Tax Landscape

Since premiums for life insurance were deductible under Section 80C in the previous year, they became popular among those looking to save their taxes. By removing the deductions, the new rules cause people to revisit their policy benefits.

Key Considerations:

• Purpose of the Policy: Distinguish whether the policy was taken out mainly to save taxes or to protect your finances.

• Policy Maturity: When a policy is about to mature after 3-4 years, try to continue without surrendering to prevent losing money.

• Coverage Adequacy: Under traditional policies, coverage is often afforded at just 10 times your annual premium, which won't be enough for full protection.

Strategic Financial Planning

Given the new tax regime, individuals should look at other financial products that align with their financial objectives and that offer higher returns or protections.

Options That Should Be Considered:

• Term Insurance: Is coverage with substantial coverage at a relatively low premium, and is for protection only.

• Public Provident Fund (PPF): This is a long-term saving scheme with tax-free returns. Appropriate for value investors who have lower risk tolerance.

• Equity-Linked Savings Scheme (ELSS): A shorter lock-in period investment that gives individuals the opportunity for higher returns, but at a higher risk.