Explanation of Tax

Benefits
Premiums paid for Life insurance - Deduction under Section 80C

1. Category of assesses allowed deduction: Individual assessee and Hindu Undivided

Family assessee.
2. Eligible Savings: Premiums paid or deposited by assessee to effect or to keep in force
insurance on the life of following persons:
o In case of individual assessee – Himself/Herself, spouse, children of such
individual
o In case of HUF assessee – any member
3. 20% limit: If the amount of premium paid in a financial year for a policy is in excess of
20% of the actual capital sum assured, then deduction will be allowed only for premiums
upto 20% of the sum assured.
4. Limit on amount of deduction: Deduction will be restricted to investments upto Rs
100,000 in savings specified under Section 80C (including life insurance premiums). The
limit of deduction under Section 80C will be part of the overall limit prescribed under
Section 80CCE.
5. Disallowance: This benefit will be reversed if the policy is terminated/cease to be inforce
within 2 years after the date of commencement of policy.

Premiums paid for Pension plans - Section 80CCC

1. Permitted Deduction: Section 80CCC allows for deduction of premiums paid under a
pension scheme. As per this Section, the whole of amount paid or deposited (excluding
interest or bonus accrued or credited to the assessee’s account, if any) as does not exceed
the amount of Rs 100,000 is eligible for deduction from the total income.
2. Receipt under Policy: Amounts received on surrender (whole/part) of annuity plan,
amounts received as Pension is taxed as income.
3. Limit: The limit of deduction under Section 80CCC will be part of the overall limit
prescribed under Section 80CCE.

 
Overall deduction limit - Section 80CCE
 
As per this section, the maximum amount of deduction that an assessee can claim under Sections
80C, 80CCC and 80CCD will be limited to Rs 100,000.

Premiums paid for medical insurance - Section 80D

1. Category of assesses allowed deduction: Individual assessee and Hindu Undivided

Family assessee.
2. Eligible premiums: Premiums paid by assessee by any mode other than cash out of his
 taxable income to effect or to keep in force an insurance on the health of following
persons:
o In case of individual assessee – Himself/Herself, spouse, dependent children and
parent or parents. The condition of dependency of parent has been removed from
FY 2008-09. In other words, even if the parent is independent, the individual can
pay the premium and claim the deduction.
o In case of HUF assessee – any member of HUF
3. Deduction and upper limit: The qualifying amounts under Section 80D for self, spouse
and dependent children is upto Rs. 15,000/- and additional deduction upto Rs. 15,000/-
for the parents. However, a higher amount of upto Rs 20,000/- is permitted if the person,
for whose health insurance the premium was paid, was aged 65 years or more at any time
during the financial year in which the premium was paid. Such amounts of premium paid
would be allowed as deduction from the total income of the assessee.

Benefits under insurance policy - Section 10(10D)

As per Section 10(10D) of Income tax Act, 1961, any sum received under a life insurance policy,
including the sum allocated by way of bonus on such policy is exempt from tax.

However, this rule does not apply to following amounts:

 

 sum received under Section 80DD(3), or

 any sum received under a Keyman Insurance Policy, or
 any sum received other than as death benefit under an insurance policy which has been
issued on or after April 1 2003 and if the premium paid in any of the years during the
term of the policy is more than 20% of the sum assured.

Tax Rates for Individuals

The rates of income-tax for FY 2010-11

 
Individual (except female/ Female (Below 65 Senior citizen (Above 65 Rat
senior citizen) years) years) e
0 – 160,000 0 - 190000 0 - 240000 Nil
Rs. 190,001 to Rs. Rs. 240,001 to Rs.
Rs. 160,001 to Rs. 500,000 10%
500,000 500,000
Rs. 500,001 to Rs. Rs. 500,001 to Rs.
Rs. 500,001 to Rs. 800,000 20%
800,000 800,000
> Rs.  800,000 > Rs.  800,000 > Rs.  800,000 30%
 
Surcharge on Income Tax:
 
No surcharge on Income Tax for the Financial Year 2009-10 for Individuals.
 
Education Cess on Income Tax
 
Edcuation Cess @3% will be payable on the amount of income tax (including surcharge).
 
Secondary & Higher Education Cess on Income Tax
 
Additional Education Cess @1% will be payable on the amount of Income tax (Including surcharge).
The best way to attain monetary independence is through utmost savings and nominal amount of
tax reduction from your earnings. However, investments are not done for tax saving purposes
only.

PLAN INVESTMENT INTEREST RATE

Min : Rs 100
Bank FD 8%-10%
Max :
Min : Rs 500
PPF Compounded at an annual interest of 8%
Max :
Min : Rs.100
NSC Compounded on 8% twice a year
Max :
Min : Rs 30,000
Compounded on 5% to 6% or 8.7% to
Infrastructure Bonds Max : Rs 1,
11.71%,
00,000
Life Insurance
Depends on policy Depends on policy
Schemes
Min : Rs 5,000
ELSS Max : Rs 1, Based on market performance
00,000
ULIPS Depends on plan Depends on plan

Bank Fixed Deposits

In a bank fixed deposit saving plan, a specific amount of money is invested in the bank for a
certain period of time by allotting a static rate of Interest. The minimum investment in most of
the banks is Rs 100. At present the rate of interest in most of the banks is between 8%-10%.

Benefits under Bank Fixed Deposits:

 The investment in bank fixed deposit saving plan is tax free under section 80L up to a
limit of Rs 12,000.
 The deposits will be secure as they are indemnified under the Deposit Insurance & Credit
Guarantee Scheme of India.
 The investor can apply for loans upto 75%-95% of the amount deposited under the bank
fixed deposit against the receipts of the fixed deposits
 Bank Fixed deposits are best to opt for if you want to invest your money for an extended
period of time besides getting high returns.

Public Provident Fund (PPF)

Public Provident Fund (PPF) is supported by the government and is generally safe with
comparatively high returns. The minimum limit of investment in PPF is Rs 500 and the
maximum is upto Rs 70,000 per annum. At present PPF is compounded at an annual interest of
8%. Benefits under Public Provident Fund (PPF):

 The investor enjoys the rebate on his investment under section 80C of I.T. Act 1961
 Interest income on PPF and the final amount is considered as tax free
 Investments in small amounts can be made every year for a longer duration
 Investments are fixed deposited for 15 years
 Balance amount held in Public Provident Fund is tax exempted from wealth tax

National Savings Certificate (NSC)

Referred by its ellipsis NSC, National Saving Certificate is a post office savings plan. Like PPF,
NSC is also supported by the government and is one of the secure investment alternatives. There
is no maximum limit on investment; however, the minimum investment limit is Rs 500 which
can be issued in small amounts of Rs.100, Rs.500, Rs.1, 000, Rs.5, 000 and Rs.10, 000. The
interest on investment is compounded on 8% twice a year.

Benefits under National Savings Certificate (NSC):

 The investor enjoys tax rebate on initial 5 years under section 80C of Income Tax Act
 Documentation can be guaranteed as safety against a mortgage to banks or Government
Institutions Provision of encashment of documentations via banks.
 However, the investment in NSC is locked in for 6 years and is taxable under 'income
from other sources'.

Infrastructure Bonds

An investor can save on taxes by investing in Infrastructure Bonds as mentioned under Section
88 of the Income Tax Act, 1961. The maximum investment is Rs 1, 00,000 and the minimum
limit is Rs 30,000. The investments will be fixed deposited for 3 years and the interest will be
compounded on 5% to 6% or 8.7% to 11.71%, if the tax break is considered.

Benefits under Infrastructure Bonds:

 Investments in infrastructure bonds from different banks are eligible for a rebate under
Section 88 of the Income Tax Act.

However, the interest will be chargeable; the investor can assert tax exemptions against Rs.
15,000 under Section 80L.

Life Insurance Schemes

While applying for Life Insurance plans look for schemes which not only provide high returns
but also maximize your insurance policy. The maximum and minimum limit of investment, it
lock-in period and returns depends on the terms and conditions of the cover. To qualify for
rebate under Section 88, the total premium amount should be within Rs 70,000

Benefits under Life Insurance Schemes

 The investor can enjoy rebate on his investments under section 80C

Equity Linked Savings Scheme (ELSS)

ELSS is a savings plans associated with equity markets. The maximum investment amount is Rs
1, 00,000 and the minimum amount is Rs 5,000. The investments are fixed deposited for three
years and the ELSS returns are based on market performance.

Benefits under Equity Linked Savings Scheme (ELSS)

 The entire investments done under Equity Linked Savings Scheme qualify for tax
deduction under 80C of Income tax Act, 1961.

Unit Linked Insurance Plans (ULIPS)

ULIPs operate like a mutual fund does and offers a life insurance. Both the maximum and
minimum amount and lock-in period of investment depends upon the terms and conditions of the
plan. The premium paid by the investor is invested in instruments like commercial bonds, public
securities and stocks.

Benefits under Unit Linked Insurance Plans

 Investments under ULIPs are eligible under Section 80C of the Income Tax Act.
 Maturity earnings from ULIPs are tax exempted
 

Best Answer - Chosen by Asker

PPF is the best among all but still if you want you can go for other options:
1) NSC
2) KVP
3) Tax saver FD
4) Mutual Funds - Canara is good one.
5) Insurance like LIC
6) ULIP :) :)

Agents will suggest you to go for ULIP because it is beneficial for them and for companies but not for
investor.

If you are not satisfied with my answer and want more details, you can mail me..don't worry i am not an
agent :) :) :)

 10 months ago
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