Is Insurance plan is the best for tax saving and investment ..?

Insurance Policy is the best tax saving or investment option…?

In these days, we are discussing more about tax saving as the financial year 2013-14 approaching towards end. The whole insurance agents are doing hard work to push their life insurance products and want to increase their income on the expense of investor’s premium.

 I agree that the life insurance is the vital part of any financial planning for face any unwanted events in the life. There are many pure or term insurance plans available in the market which need very less premium compare with other famous insurance plan. The investor also purchase these costly policies in the hurry on the name of tax saving and investment. The two type of policies are very famous among the investors and agents. One is endowment plan and other is money back plan. We will analyze here these type of plans today.

Endowment Plan:  It is life insurance plan which deduct one part of the premium which you pay for insurance cover and the other part invest in different available financial products according to the particular policy plan. Investor get the amount at the time of maturity and pay the premium either till maturity or according to the mentioned year on policy.

Money Back Plan:   This plan is very popular among the investors. In this plan, policy holders get some part of money like 20% to 25% of the sum assured as survival benefit in regular interval. This regular interval varies according to the plan 3 year, 5 year etc. The premium of these plans high compare with endowment plan. Except receiving money in regular interval all other features same as endowment plan.

Let us take one example for better understanding. A 30 year old person decide for insurance plan, risk cover 20 year and sum assured 10 lakh. The approximate premium for endowment plan would be      Rs 48,000 and on the approximate maturity amount would be 19 lakh. The premium for money back plan would be approximate Rs 64,000 and he will receive Rs 2 lakh in every 5 years.  The maturity value would be approximate Rs 12.3 lakh. Investor feel very happy when would receive amount 2 lakh in every year but ignore the high premium.

For above mentioned example, the term insurance premium would be approx Rs 3000 annual which is much lower compare with other plan’s premium.

If we calculate the internal rate of return of the above mentioned plan, the return of endowment plan would be 6% and 5 % for money back plan. You can easily understand the difference now. Would you still like to go with such types of plans which provide you with 5% - 6% during 20 year investment? In fact the return do not beat to inflation even which is at present in 8% to 9% range. We are not showing entire calculation here due to space and it would be too lengthy for 20 year calculation. If you want to see the entire calculation we can provide you.

Many people consider LIC product due to safety. If safety is your most priority there is one product which is more safer called PPF which also give return 8-9% and lock in period 15 years. It also qualify for tax saving under section 80C as equal insurance premium. For insurance cover you can consider term insurance plan which have more cheaper premium.

For more detail and any other query related investment, you can contact me through my email.

Warm regards,

Arvind Trivedi

Certified Financial Planner

arvind.trivedi79@gmail.com

www.artofinvest.com

www.arvindtrivedicfp.blogspot.in

Important points for tax planning

Some important things about tax planning

According to law every individual are required to file Income Tax Returns, if your total income without allowing deductions (such as Section80C etc) exceeds the basic exemption limit.

This year many relaxation given by our finance minister for assessment year (2013-14), the exemption limit has been increased. 

·         For Individuals below the age of 60 (both men and women),the exemption limit is Rs. 2 Lakh.

·         For senior citizens above the age of 60, the exemption limit is Rs. 2.5 Lakh

·         For super senior citizens (Individuals above the age of 80), the exemption limit is raised to Rs. 5 Lakh

There’s some more good news for Senior Citizens because the eligible age for Senior Citizens has been reduced from 65 to 60 years for:

·         Section 80D (Deductions on Medical Insurance),

·         Section 80DDB (Deduction on Medical Treatment) and 197A

Changes in e-Filing this year onwards:

·         E-Filing is compulsory for people earning more than Rs. 5Lakhs. This refers to the total income amount after claiming tax deductions like section 80 deductions. 

·         You will need to enter the IFSC code instead of MICR code while specifying your account details along with 11-digit Bank Account Number for easy return through ECS. If you do not have an 11-digit bank account number, then you have to request your refund via cheque. 

·         You will have to file the ITR-2 in case of exempt income exceeding Rs. 5,000. Common examples of Exempt Income are PPF interest. Dividend earned from shares etc.

·         Remember to claim Section 80TTA: Everyone should declare their Bank Interest Income and then claim this deduction. 

·         Declaration of Assets and Liabilities for Business people:If you earn Income from Business or Profession and your Total Income exceeds Rs. 25 Lakhs, you have to provide the details of all your personal and business Assets & Liabilities in Income Tax return itself. This is for people filling in ITR-3 and ITR-4 only. 

·         Foreign Income declaration: Income earned from foreign countries has to be declared in the ITR. This is in addition declaration of all foreign assets in your I-T Return.

There are many other aspects which is equially important during tax planning. We will discuss that in our further article.

For more detail about any other query related investment, you can contact me through my email.

Warm regards,

Arvind Trivedi

Certified Financial Planner

arvind.trivedi79@gmail.com