insurance as a tax saving tool

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Tax

A tax (from the Latin taxo; "I estimate") is a financial charge or other levy imposed upona taxpayer (an individual or legal entity) by a state or the functional equivalent of a statesuch that failure to pay is punishable by law. Taxes are also imposed by manyadministrative divisions. Taxes consist of direct or indirect taxes and may be paid inmoney or as its labour equivalent.

According to Black's Law Dictionary, a tax is a "pecuniary burden laid upon individuals

or property owners to support the government. A payment exacted by legislativeauthority." It "is not a voluntary payment or donation, but an enforced contribution,exa cted pursuant to legislative authority" and is any contribution imposed bygovernment, whether under the name of toll, tribute, tallage, gabel, impost, duty, custom,excise, subsidy, aid, supply, or other name.

Overview

The legal definition and the economic definition of taxes differ in that economists do notconsider many transfers to governments to be taxes. For example, some transfers to thepublic sector are comparable to prices. Examples include tuition at public universities andfees for utilities provided by local governments. Governments also obtain resources bycreating money (e.g., printing bills and minting coins), through voluntary gifts (e.g.,contributions to public universities and museums), by imposing penalties (e.g., trafficfines), by borrowing, and by confiscating wealth. From the view of economists, a tax is anon-penal, yet compulsory transfer of resources from the private to the Public sectorlevied on a basis of predetermined criteria and without reference to specific benefitreceived.

In modern taxation systems, taxes are levied in money; but, in-kind and corve taxationare characteristic of traditional or pre -capitalist states and their functional equivalents.The method of taxation and the government expenditure of taxes raised is often highly
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debated in politics and economics. Tax collection is performed by a government agencysuch as Canada Revenue Agency, the Internal Revenue Service (IRS) in the UnitedStates, or Her Majesty's Revenue and Customs (HMRC) in the United Kingdom. Whentaxes are not fully paid, civil penalties (such as fines or forfeiture) or criminal penalties

(such as incarceration) may be imposed on the non-paying entity or individual.

History

The first known system of taxation was in Ancient Egypt around 3000 BC - 2800 BC inthe first dynasty of the Old Kingdom. The earliest and most widespread form of taxationwas the corve and tithe. The corve was forced labour provided to the state by peasants

too poor to pay other forms of taxation (labour in ancient Egyptian is a synonym fortaxes). Records from the time document that the pharaoh would conduct a biennial tourof the kingdom, collecting tithes from the people. Other records are granary receipts onlimestone flakes and papyrus. Early taxation is also described in the Bible. In Genesis(chapter 47, verse 24 - the New International Version ), it states "But when the cropcomes in, give a fifth of it to Pharaoh. The other four-fifths you may keep as seed for thefields and as food for yourselves and your households and your children". Joseph wastelling the people of Egypt how to divide their crop, providing a portion to the Pharaoh. Ashare (20%) of the crop was the tax.

Later, in the Persian Empire, a regulated and sustainable tax system was introduced byDarius I the Great in 500 BC; the Persian system of taxation was tailored to each Satrapy(the area ruled by a Satrap or provincial governor). At differing times, there werebetween 20 and 30 Satrapies in the Empire and each was assessed according to itssupposed productivity. It was the responsibility of the Satrap to collect the due amountand to send it to the emperor, after deducting his expenses (the expenses and the power of deciding precisely how and from whom to raise the money in the province, offer

maximum opportunity for rich pickings). The quantities demanded from the variousprovinces gave a vivid picture of their economic potential. For instance, Babylon wasassessed for the highest amount and for a startling mixture of commodities; 1,000 silvertalents and four months supply of food for the army. India, a province fabled for its gold,was to supply gold dust equal in value to the very large amount of 4,680 silver talents.Egypt was known for the wealth of its crops; it was to be the granary of the Persian
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Empire (and, later, of the Roman Empire) and was required to provide 120,000 measuresof grain in addition to 700 talents of silver. This was exclusively a tax levied on subjectpeoples. Persians and Medes paid no tax, but, they were liable at any time to serve in thearmy.

The Rosetta Stone, a tax concession issued by Ptolemy V in 196 BC and written in threelanguages "led to the most famous decipherment in history the cracking of hieroglyphics".

In India, Islamic rulers imposed jizya (a poll tax on non-Muslims) starting in the 11thcentury. It was abolished by Akbar.

Heads of Income

The total income of a person is segregated into five heads:-

Income from Salary Income from house property Income from business or profession Capital Gain and Income from other sources

Income from Salary

All income received as salary under Employer-Employee relationship is taxed underthis head, on due or receipt basis, whichever arises earlier. Employers must withholdtax compulsorily (subject to Section 192), if income exceeds minimum exemptionlimit, as Tax Deducted at Source (TDS), and provide their employees with a Form16 which shows the tax deductions and net paid income.
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All other Perquisites are to be calculated according to specified provision and rulesfor each. Only two deductions are allowed under Section 16, viz. Professional Taxand Entertainment Allowance (the latter only available for specified governmentemployees).

Income from House property

Income under this head is taxable if the assessee is the owner of a property consistingof building or land appurtenant thereto and is not used by him for his business orprofessional purpose. An individual or an Hindu Undivided Family (HUF) is eligibleto claim any one property as Self-occupied if it is used for own or family's residential

purpose. In that case, the Net Annual Value (as explained below) will be nil. Such abenefit can only be claimed for one house property. However, the individual (orHUF) will still be entitled to claim Interest on borrowed capital as deduction undersection 24, subject to some conditions. In the case of a self occupied house deductionon account of interest on borrowed capital is subject to a maximum limit of Rs.1,50,000 (if loan is taken on or after 1 April 1999 and construction is completedwithin 3 years) and Rs.30,000 (if the loan is taken before 1 April 1999). For let-outproperty, all interest is deductible, with no upper limits. The balance is added totaxable income.

The computation of income from let-out property is as under:-

Gross Annual Value (GAV) xxxx

Less: Municipal Taxes paid (xxx)

Net Annual Value (NAV) xxxx

Less: Deductions under

section 24(xxx)

Income from House property xxxx


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The GAV is higher of Annual Letting Value (ALV) and Actual rentreceived/receivable during the year. The ALV is higher of fair rent and

municipal value, but restricted to standard rent fixed by Rent Control Act. Only two deductions are allowed under this heaad by virtue of section 24, viz., 30% of Net annual value as Standard deduction Interest on capital borrowed for the purpose of acquisition, construction,

repairs, renewals or reconstruction of property (subject to certain provisions).

Income from Business or Profession

The income referred to in section 28, i.e., the incomes chargeable as "Income fromBusiness or Profession" shall be computed in accordance with the provisionscontained in sections 30 to 43D. However, there are few more sections under thisChapter, viz., Sections 44 to 44DA (except sections 44AA, 44AB & 44C), whichcontain the computation completely within itself. Section 44C is a disallowanceprovision in the case non-residents. Section 44 (AA) deals with maintenance of booksand section 44 (AB) deals with audit of accounts.

In summary, the sections relating to computation of business income can be groupedas under: -

Specific deductionsSections 30 to 37 cover expenses which are expresslyallowed as deduction while computing business income.

Specific disallowance Sections 40, 40A and 43B cover inadmissible expenses.

Deemed Incomes Sections 33AB, 33ABA, 33AC, 35A, 35ABB, 41.


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Special provisionsSections 42, 43C, 43D, 44, 44A, 44B, 44BB, 44BBA,44BBB, 44DA, 44DB.

Presumptive Income Sections 44AD, 44AE.

The computation of income under the head "Profits and Gains of Business orProfession" depends on the particulars and information available .[5]

If regular books of accounts are not maintained, then the computation would be asunder: -

Income (including Deemed Incomes) chargeable as income under this head xxx

Less : Expenses deductible (net of disallowances) under this head (xx)

Full value of consideration1 xxx

Less: Cost of acquisition (xx)

Less: Cost of improvement (xx)

Less: Expenditure pertaining to (xx)
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Income from Capital Gains

Transfer of capital assets results in capital gains. A Capital asset is defined undersection 2(14) of the I.T. Act, 1961 as property of any kind held by an assessee such asreal estate, equity shares, bonds, jewellery, paintings, art etc. but does not includesome items like any stock-in-trade for businesses and personal effects. Transfer hasbeen defined under section 2(47) to include sale, exchange, relinquishment of asset extinguishment of rights in an asset, etc. Certain transactions are not regarded as

'Transfer' under section 47.

Computation of Capital Gains:-

In case of transfer of land or building, if sale consideration is less than thestamp duty valuation, then such stamp duty value shall be taken as full value of consideration by virtue of Section 50C. The transferor is entitled to challengethe stamp duty valuation before the Assessing Officer.

Cost of acquisition & cost of improvement shall be indexed in case the capitalasset is long term.

For tax purposes, there are two types of capital assets: Long term and short term.Transfer of long term assets gives rise to long term capital gains. The benefit of indexation is available only for long term capital assets. If the period of holding ismore than 36 months, the capital asset is long term, otherwise it is short term.However, in the below mentioned cases, the capital asset held for more than 12

months will be treated as long term:- Any share in any company

Government securities

Listed debentures

transfer incurred by the transferor
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Units of UTI or mutual fund, and

Zero-coupon bond

Also, in certain cases, indexation benefit is not be available even though the capitalasset is long term. Such cases include depreciable asset (Section 50), Slump Sale(Section 50B), Bonds/debentures (other than capital indexed bonds) and certain otherexpress provisions in the Act. There are different scheme of taxation of long termcapital gains. These are:

1. As per Section 10(38) of Income Tax Act, 1961 long term capital gains onshares or securities or mutual funds on which Securities Transaction Tax (STT) hasbeen deducted and paid, no tax is payable. STT has been applied on all stock market

transactions since October 2004 but does not apply to off-market transactions andcompany buybacks; therefore, the higher capital gains taxes will apply to suchtransactions where STT is not paid.

2. In case of other shares and securities, person has an option to either indexcosts to inflation and pay 20% of indexed gains, or pay 10% of non indexed gains.The cost inflation index rates are released by the I-T department each year.

3. In case of all other long term capital gains, indexation benefit is available

and tax rate is 20%.

All capital gains that are not long term are short term capital gains, which are taxedas such:

Under section 111A, for shares or mutual funds where STT is paid, tax rateis 10% from Assessment Year (AY) 2005-06 as per Finance Act 2004. With effectfrom AY 2009-10 the tax rate is 15%.

In all other cases, it is part of gross total income and normal tax rate isapplicable.

For companies abroad, the tax liability is 20% of such gains suitably indexed (sinceSTT is not paid).Besides exemptions under section 10(33), 10(37) & 10(38) certain specificexemptions are available under section 54, 54B, 54D, 54EC, 54F, 54G & 54GA.
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Income from Other Sources

This is a residual head; under this head income which does not meet criteria to go toother heads is taxed. There are also some specific incomes which are to be alwaystaxed under this head.

1. Income by way of Dividends.

2. Income from horse races/lotteries.

3. Employees' contribution towards staff welfare scheme.

4.

Interest on securities (debentures, Government securities and bonds).5. Any amount received from keyman insurance policy as donation.

6. Gifts (subject to certain conditions and exemptions).

7. Interest on compensation/enhanced compensation.

Insurance

Insurance is the equitable transfer of the risk of a loss, from one entity to another inexchange for payment. It is a form of risk management primarily used to hedge againstthe risk of a contingent, uncertain loss.

An insurer, or insurance carrier, is a company selling the insurance; the insured, orpolicyholder, is the person or entity buying the insurance policy. The amount to becharged for a certain amount of insurance coverage is called the premium. Risk management, the practice of appraising and controlling risk, has evolved as a discretefield of study and practice.
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The transaction involves the insured assuming a guaranteed and known relatively smallloss in the form of payment to the insurer in exchange for the insurer's promise tocompensate (indemnify) the insured in the case of a financial (personal) loss. The insuredreceives a contract, called the insurance policy, which details the conditions and

circumstances under which the insured will be financially compensated.

Principles

Insurance involves pooling funds from many insured entities (known as exposures) to payfor the losses that some may incur. The insured entities are therefore protected from risk for a fee, with the fee being dependent upon the frequency and severity of the eventoccurring. In order to be insurable, the risk insured against must meet certaincharacteristics in order to be an insurable risk. Insurance is a commercial enterprise and a

major part of the financial services industry, but individual entities can also self-insurethrough saving money for possible future losses.

History of insurance

History of insurance refers to the development of a modern businessin insurance against risks, especially regarding ships, cargo, and buildings ("property"

and "fire"), death ("life" insurance), automobile accidents ("auto"), and the cost of medical treatment (health insurance).

The industry has been profitable and has provided attractive employmentopportunities for white collar workers. It helps eliminate risks (as when fire insurancecompanies demand safe practices and the availability of fire stations and hydrants),spreads risks from the individual or single company to the larger community, andprovides an important source of long-term finance for both the public and privatesectors.

In India, insurance has a deep-rooted history. It finds mention in the writings of Manu( Manusmrithi ), Yagnavalkya (Dharmasastra ) and Kautilya ( Arthasastra ). Thewritings talk in terms of pooling of resources that could be re-distributed in times of calamities such as fire, floods, epidemics and famine. This was probably a pre-cursorto modern day insurance. Ancient Indian history has preserved the earliest traces of
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insurance in the form of marine trade loans and carriers contracts. Insurance in Indiahas evolved over time heavily drawing from other countries, England in particular.

1818 saw the advent of life insurance business in India with the establishment of the Oriental Life Insurance Company in Calcutta. This Company however failed in1834. In 1829, the Madras Equitable had begun transacting life insurance business inthe Madras Presidency. 1870 saw the enactment of the British Insurance Act and inthe last three decades of the nineteenth century, the Bombay Mutual (1871), Oriental(1874) and Empire of India (1897) were started in the Bombay Residency. This era,however, was dominated by foreign insurance offices which did good business inIndia, namely Albert Life Assurance, Royal Insurance, Liverpool and London Globe

Insurance and the Indian offices were up for hard competition from the foreigncompanies.

In 1914, the Government of India started publishing returns of InsuranceCompanies in India. The Indian Life Assurance Companies Act, 1912 was the firststatutory measure to regulate life business. In 1928, the Indian Insurance CompaniesAct was enacted to enable the Government to collect statistical information about

both life and non-life business transacted in India by Indian and foreign insurersincluding provident insurance societies. In 1938, with a view to protecting the interestof the Insurance public, the earlier legislation was consolidated and amended by theInsurance Act, 1938 with comprehensive provisions for effective control over theactivities of insurers.

The Insurance Amendment Act of 1950 abolished Principal Agencies. However,there were a large number of insurance companies and the level of competition washigh. There were also allegations of unfair trade practices. The Government of India,therefore, decided to nationalize insurance business.


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The LIC absorbed 154 Indian, 16 non-Indian insurers as also 75 provident societies 245 Indian and foreign insurers in all. The LIC had monopoly till the late 90s whenthe Insurance sector was reopened to the private sector and 24 General InsuranceCompanies including the ECGC and Agriculture Insurance Corporation of India and

23 life insurance companies operating in the country.

The insurance sector is a colossal one and is growing at a speedy rate of 15-20%.Together with banking services, insurance services add about 7% to the countrysGDP. A well-developed and evolved insurance sector is a boon for economicdevelopment as it provides long- term funds for infrastructure development at thesame time strengthening the risk taking ability of the country.

Life insurance

Life insurance is a contract between an insured (insurance policy holder) andan insurer, where the insurer promises to pay a designated beneficiary a sum of money (the "benefits") upon the death of the insured person. Depending on thecontract, other events such as terminal illness or critical illness may also trigger

payment. The policy holder typically pays a premium, either regularly or as a lumpsum. Other expenses (such as funeral expenses) are also sometimes included in thebenefits.

The advantage for the policy owner is "peace of mind", in knowing that the death of the insured person will not result in financial hardship for loved ones and lenders.

It is possible for life insurance policy payouts to be made in order to help supplementretirement benefits; however, it should be carefully considered throughout the design

and funding of the policy itself.

Life policies are legal contracts and the terms of the contract describe the limitationsof the insured events. Specific exclusions are often written into the contract to limitthe liability of the insurer; common examples are claims relating to suicide, fraud,war, riot and civil commotion.
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Life-based contracts tend to fall into two major categories:

Protection policies designed to provide a benefit in the event of specified event,typically a lump sum payment. A common form of this design is term insurance.

Investment policies where the main objective is to facilitate the growth of capital byregular or single premiums. Common forms (in the US) are whole life, universallife and variable life policies.

History of life insurance

Insurance began as a way of reducing the risk to traders, as early as 2000 BC in

China and 1750 BC in Babylon. Life insurance dates to ancient Rome; "burial clubs"covered the cost of members' funeral expenses and assisted survivors financially.Modern life insurance originated in 17th century England, originally as insurance fortraders. Merchants, ship owners and underwriters met to discuss deals at Lloyd'sCoffee House, predecessor to the famous Lloyd's of London. The first society to selllife insurance was the Amicable Society for a Perpetual Assurance Office.
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The first insurance company in the United States was formed in Charleston, SouthCarolina in 1732, but it provided only fire insurance. The sale of life insurance in theU.S. began in the late 1760s. The Presbyterian Synods in Philadelphia and NewYork created the Corporation for Relief of Poor and Distressed Widows and Children

of Presbyterian Ministers in 1759; Episcopalian priests organized a similar fund in1769. Between 1787 and 1837 more than two dozen life insurance companies werestarted, but fewer than half a dozen survived.

Prior to the American Civil War, many insurance companies in the UnitedStates insured the lives of slaves for their owners. In response to bills passedin California in 2001 and in Illinois in 2003, the companies have been required tosearch their records for such policies. New York Life, for example, reported that

Nautilus sold 485 slaveholders life insurance policies during a two -year period in the1840s; they added that their trustees voted to end the sale of such policies 15 yearsbefore the Emancipation Proclamation.

Market trends

Stranger originated

Stranger Originated Life Insurance or STOLI is a life insurance policy that is held orfinanced by a person who has no relationship to the insured person. Generally, the

purpose of life insurance is to provide peace of mind by assuring that financial loss orhardship will be alleviated in the event of the insured person's death. STOLI has oftenbeen used as an investment technique whereby investors will encourage someone(usually an elderly person) to purchase life insurance and name the investors as thebeneficiary of the policy. This undermines the primary purpose of life insurance, asthe investors would incur no financial loss should the insured person die. In some

jurisdictions, there are laws to discourage or prevent STOLI.

Criticism

Although some aspects of the application process (such as underwriting and insurableinterest provisions) make it difficult, life insurance policies have been used tofacilitate exploitation and fraud. In the case of life insurance, there is a possiblemotive to purchase a life insurance policy, particularly if the face value is substantial,and then murder the insured.
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The television series Forensic Files has included episodes that feature this scenario.There was also a documented case in 2006, where two elderly women were accusedof taking in homeless men and assisting them. As part of their assistance, they took out life insurance for the men. After the contestability period ended on the policies,

the women are alleged to have had the men killed via hit-and-run car crashes.Recently, viatical settlements have created problems for life insurance providers. Aviatical settlement involves the purchase of a life insurance policy from an elderly orterminally ill policy holder. The policy holder sells the policy (including the right toname the beneficiary) to a purchaser for a price discounted from the policy value.The seller has cash in hand, and the purchaser will realize a profit when the sellerdies and the proceeds are delivered to the purchaser. In the meantime, the purchasercontinues to pay the premiums. Although both parties have reached an agreeable

settlement, insurers are troubled by this trend. Insurers calculate their rates with theassumption that a certain portion of policy holders will seek to redeem the cash valueof their insurance policies before death. They also expect that a certain portion willstop paying premiums and forfeit their policies. However, viatical settlements ensurethat such policies will with absolute certainty be paid out. Some purchasers, in orderto take advantage of the potentially large profits, have even actively sought to colludewith uninsured elderly and terminally ill patients, and created policies that wouldhave not otherwise been purchased. These policies are guaranteed losses from theinsurers' perspective.

12 different types of life insurance policies

The life insurance policies are of many types. Life insurance products come in avariety of offerings catering to the investment needs and objectives of different kindsof investors. Following is the list of broad categories of life insurance products:

(1) Whole life Policy:

Under this policy premiums are paid throughout life and the sum insured becomespayable only at the death of the insured. The policy remains in force throughout thelife of the assured and he continues to pay the premium till his death. This is thecheapest policy as the premium till his death. This is the cheapest policy as the

premium charged is the lowest under this policy. This is also known as ordinary life policy. This policy is suitable to persons who want to provide for payment of estate
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duty, make bequeathments for charitable purposes and to provide for their familiesafter their death.

(2) Limited payment life policy:

In the case of whole life policy there is one disadvantage in that the assured mustcontinue to pay the premium even during his old age when he is no more employed.Under the limited payment life policy premiums are payable for a selected number of years or until death, if, earlier. The assured knows how much he will be required topayable only at the how long he lives. The sum insured becomes payable only at thehow long he lives. The sum insured becomes payable only at the death of the insured.It is a suitable policy to meet the family needs.

(3) Endowment policy:

It runs only for a limited period or up to a particular age. Under this policy the sumassured becomes payable if the assured reaches a particular age or after the expiry of a fixed period called the endowment period or at the death of the assured whicheveris earlier. The premium under this policy is to be paid up to the maturity of thepolicy, i.e., the time when the policy becomes payable. Premium is naturally a littlehigher in the case of this policy than the whole life policy. This is a very popularpolicy these days as it serves the dual purpose of family and ole age pension.

(4) Double endowment policy:

Under this policy the insurer agrees to pay to the assured double the amount of theinsured sum if he lives on beyond the date of maturity of the policy. This policy issuitable for persons with physical disability who are otherwise not acceptable forother classes of assurance at the normal tabular rates. Premiums are to be paid for aselected term of years or until death, if earlier.

(5) Joint Life Policy:

This policy covers the risk on two lives and is generally available to partners inbusiness. Policies are however, issued on the lives of husband and wife underspecified circumstances. Sum assured becomes payable at the end of the selectedterm or on the death of either of the two lives assured, if earlier.


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(6) With or without profit policies:

Under the with profit or participating policies, the policy holder is allowed a sharein the profits of the corporation in the form of bonus and it is added to the total sum

assured and paid at the time of matur ity of the policy. In the case of without profit or non-participating policies, no such profit is allowed. Premium in the first case ishigher and is lower in the later case.

(7) Convertible whole life policy:

This policy initially provides maximum insurance protection at minimum cost andoffers a flexible contract which can be altered at the end of five years from thecommencement of the policy to endowment insurance.

(8) Convertible term assurance policy:

This policy meets the needs of those who are initially unable to pay the largerpremium required for a whole life or endowment assurance policy but hope to be ableto do so within a few years. It would also enable such persons to take final decision ata later date about the plan suitable for their future needs.

(9) Fixed term (marriage) Endowment policy & education annuity policy:

It is a policy suitable for making provisions for the marriage or education of children.Premiums are payable for a selected term or till prior death. The benefits are payablefor selected term or till prior death. The benefits are payable only at the end of selected term. In case of the marriage endowment, the sum assured is paid in lumpsum, but in case of the educational annuity, it is paid in equal half-yearly installmentsover a period of five years.

(10) Annuities:

It is a policy under which the insured amount is payable to the assured by monthly orannual installments after he attains a certain age. The assured may pay the premiumregularly over a certain period or he may pay the premium regularly over a certainperiod or he may pay a lump sum of money at the outset. These policies are useful topersons who wish to provide a regular income for themselves and their dependants.


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(11) Sinking fund policy:

Such a policy is taken with a view to providing for the payment of liability orreplacement of an asset.

(12) Multipurpose policy:

This policy meets several insurance needs of a person like provision for himself inold age, income for his family and provision for the education, marriage or the startin life of his children. It gives maximum protection to the beneficiaries in the event of the early death of the assured, as it provides:

i) Regular monthly income during the unexpired term;

ii) Additional monthly income for a period of two years from the date of death;

iii) Payment of a part of the sum assured on death and

iv) Payment of the balance sum assured at the end of the selected period

On maturity the assured may get the sum assured in cash, in the form of monthlypension, or an increased sum payable on death. Premiums are payable during theselected term or till death, it earlier.

Section 80C Deductions

Deduction under this section is available only to an individual or an HUF.

Section 80C of the Income Tax Act allows certain investments and expenditure to bededucted from total income up to the maximum of 1 lac. The total limit under thissection is- 1, 00, 000 ) which can be any combination of the below:

1. Contributions to approved superannuation fund/public providentfund/recognized provident fund/statutory provident fund. Provident fund contributionshould not exceed 1/5 th of salary & public provident fund.


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2. Payment of life insurance premium. It is allowed on premium paid on self,spouse and children even if they are not dependent on father or mother (subject to amaximum of 20% of sum assured).

3.

Payment in respect of non-commutable deferred annuity.4. Unit linked Insurance policy of UTI/LIC Mutual fund Dhanraksha.

5. Subscriptions to National Savings Certificates VIII issues.

6. Principal part of loan taken for acquiring Residential House Property;provided that the house should not be transferred within 5 years. Loan for land costfor residential house is also qualified.

7. Notified annuity plan of LIC or of any other approved insurer.

8. Equity linked savings scheme (ELSS).

9. Notified pension fund by UTI or approved mutual fund.

10. Tuition fees (not including donation or development fees) towards full-timeeducation including play-school activities, pre-nursery & nursery classes, of any 2children of an individual, paid to University, College or School in India.

11. Any sum deposited as 5 years time deposit under Post Office Term Deposit.

12. Any sum deposited in Senior Citizen Savings Scheme.

13. Any sum deducted from salary of Government employee (subject tomaximum 20% of salary) towards deferred annuity plan for benefit of self, spouse orany children.

14. Term deposit with scheduled bank for a period of not less than 5 years as perscheme notified by Central Government.

Premiums paid for Life Insurance Plans Category of Assessees eligible for Deduction:Individual
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Hindu Undivided Family assessee

Eligible Payments: Premiums paid or deposited in the Financial Year by assessee toeffect or to keep in force insurance on the life of following persons:In the case of Individual Self, spouse and childrenIn the case of HUF - Any member of HUF (incl. Karta)The Finance Bill, 2012 has proposed that the deduction from your income under Sec80C, for premiums payable on life insurance policies issued on or after 1st April,2012, shall be available only to the extent of 10% of the Actual Capital SumAssured*If the insurance contract is terminated in case of single premium insurance policywithin 2 years from the date of commencement of insurance or in other cases beforepremiums have been paid for 2 years, tax deduction allowed earlier would becometaxable as income.

Premium paid for Annuity Plans Premium paid during Financial Year for deferred Annuity Plan or

Government notified annuity Plan is also eligible for tax deduction under Section80C. Premium can be paid for deferred Annuity Plan on the life of self, spouse

and children.

Limit on Amount of Deduction Deduction under Section 80C is available upto a maximum of Rs.100,000,

the overall limit provided under the Income-tax Act for payments/deposits specifiedunder Section 80C, 80CCC and 80CCD (contribution to pension scheme of CentralGovernment) in aggregate.

* "Actual Capital Sum Assured in relation to a life insurance policy shall mean theminimum amount assured under the policy on happening of the insured event at anytime during the term of the policy, not taking into account -(i) the value of any premium agreed to be returned; or(ii)any benefit by way of bonus or otherwise over and above the sum actually

assured, which is to be or may be received under the policy by any person

"Please note that tax laws and benefits under the said laws are subject to change.Please consult your tax advisor for the latest tax benefits on Life Insurance plans."


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Section 80CCC

As per section 80CCC, where an assessee being an individual has in the previousyear paid or deposited any amount out of his income chargeable to tax to effect or

keep in force a contract for any annuity plan of Life Insurance Corporation of Indiaor any other insurer for receiving pension from the Fund referred to in clause(23AAB) of section 10, he shall, in accordance with, and subject to the provisions of this section, be allowed a deduction in the computation of his total income, of thewhole of the amount paid or deposited (excluding interest or bonus accrued orcredited to the assessee's account, if any) as does not exceed the amount of one lakhrupees in the previous year.

A payment made to LIC or to any other approved insurer under an approved pension

plan is admissible for deduction under this section. Then pension plan policy shouldbe for individual himself out of his taxable income. The deduction is least of theamount paid or Rs. 100000.

Deductions under Section 80CCC - Premiums paid for Pension Plans

1. Permitted Deduction: Section 80CCC allows to an individual, tax deduction

for amount paid during the financial year out of income chargeable to tax, towardsspecified Pension Plan. Maximum deduction allowed is Rs.100,000, the overall limitprovided under the Income-tax Act for payments/deposits specified under Section80C, 80CCC and 80CCD (contribution to pension scheme of Central Government) inaggregate.

2. Receipt under Policy: Amounts received on surrender (whole/part) of annuity plan, (including accrued interest / bonus) and amounts received as Pensionare taxable as income in the year of receipt if deduction has been allowed earlier forthe contribution (premiums) made to the said Pension plans.

"Please note that tax laws and benefits under the said laws are subject to change.Please consult your tax advisor for the latest tax benefits on Life Insurance plans."


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Tax Save - Under Sec 80C, 80CCC, 80D

March 31st is approaching and everyone is investing to save tax. Just wanted to sharesome points with you on Sec 80C, 80CCC, 80D for tax purpose -

Life Insurance premium Any Premium in excess of 20% of sum assured is not eligible for tax rebate under sec80C. E.g. You have policy of sum assured Rs. 4,00,000/- and you are payingpremium every year Rs. 85,000/-. Than you can claim maximum up to Rs. 80,000/-under section 80C. So invest in life insurance after keeping in mind the above rule.

ULIPs If you are looking for tax rebate under ULIPs policies, than you must note that youhave a lock-in period of 5 years for 80C deduction purposes. So next time if any salesperson tell you that just invest for 3 years, get good return and exit after 3 year. Think twice. Taxman will catch you.

Health Insurance Premium The annual deduction under sec 80D is of Rs. 15,000/- from taxable income for

payment of Health Insurance premium for self, spouse, children. For senior citizens,the maximum deduction is Rs. 20,000/-.

Pension Funds The aggregate deduction under Sec. 80C and the contributions to annuity plans orpension funds under Sec. 80CCC or Sec. 80CCD should not exceed Rs. 1 lakh.

The maximum amount deductible under section 80C is Rs. 1,00,000. Also the

total amount of deductions under sections 80C, 80CCC and 80CCD is Rs.1,00,000.

Surrender value Surrender value received is taxable in the year of receipt in the hands of the assesseeor nominee


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INCOME-TAX AND TAX BENEFITS FROM LIFE INSURANCE

Income Slabs Tax Rates

Individual &HUF below ageof 60 years

Individual 60 years of age and more but lessthan 80 years

Individual 80 years of age and more

Income uptoRs.2,00,000

Income upto Rs.2,50,000 Income up to Rs.5,00,000

NIL

Rs.2,00,001 toRs.5,00,000

Rs.2,50,001 to Rs.5,00,000 -- 10%

Rs.5,00,001 to

Rs.10,00,000

Rs.5,00,001 toRs.10,00,000

Rs.5,00,001 to

Rs.10,00,000

20%

AboveRs.10,00,001

Above Rs.10,00,001 Above Rs.10,00,001 30%

A] INCOME-TAX RATES FOR ASSESSMENT YEAR 2013-2014(FINANCIAL YEAR 2012-2013)

Education Cess: An additional surcharge called as 'Education Cess' is levied atthe rate of 2% on the amount of Income tax in all cases shall be levied.

Secondary and Higher: An additional surcharge, called the "Secondary andHigher Education Cess on income - tax" at the rate of 1% of income-tax and


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surcharge (not including the "Education Cess on Income - tax") in all cases shallbe levied.

B] SOME IMPORTANT INCOME TAX BENEFITS AVAILABLE UNDERVARIOUS PLANS OF LIFE INSURANCE ARE HIGHLIGHTED BELOW:

1) Deduction allowable from Income for payment of Life InsurancePremium (Sec. 80C).

(a) Life Insurance premium paid in order to effect or to keep in force aninsurance on the life of the assessee or on the life of the spouse or any child of assessee & in the case of HUF, premium paid on the life of any member thereof under an insurance policy, ( other than a contract for a deferred annuity,) issued onor before the 31 st day of March 2012 shall be eligible for deduction only to theextent of 20% of the actual capital sum assured.

(b) Life Insurance premium paid in order to effect or to keep in force aninsurance on the life of the assessee or on the life of the spouse or any child of assessee & in the case of HUF, premium paid on the life of any member thereof ,under an insurance policy , ( other than a contract for a deferred annuity,) issuedon or after the 1 st day of April 2012 shall be eligible for deduction only to theextent of 10% of the actual capital sum assured.

(c) Contribution to deferred annuity Plans in order to effect or to keep inforce a contract for deferred annuity, on his own life or the life of his spouse orany child of such individual, provided such contract does not contain a provision toexercise an option by the insured to receive a cash payment in lieu of the paymentof annuity is eligible for deduction.


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(d) Contribution to Annuity Plans - New Jeevan Dhara, New Jeevan Dhara -I & Jeevan Akshaya - VI

2) Jeevan Nidhi Plan & New Jeevan Suraksha - I Plan (U/s. 80CCC)

A deduction to an individual for any amount paid or deposited by him from histaxable income in the above annuity plans for receiving pension (from the fund setup by the Corporation under the Pension Scheme) is allowed.

NOTE: The aggregate amount of deduction under u/s 80C, 80CCC & 80CCD (1)shall not in any case exceed one lakh Rupees. However, there is no sectoral capi.e. the limit of Rs.1, 00, 000/- can be exhausted by paying premium under any of the said sections.

.

4) Deduction under section 80D

a) Deduction allowable upto Rs.15,000/- if an amount is paid to keep in forcean insurance on health of assessee or his family (i.e. Spouse & dependent children)or any contribution made to the central Government Health Scheme or on accountof Preventive health check - up of the assessee or his family .

b) Additional deduction upto Rs.15,000/- if an amount is paid to keep in forcean insurance on health of parents or on account of Preventive health check - up of the parent of the assessee, whether dependent or not .


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c) In case of HUF, Deduction allowable upto Rs.15, 000/- if an amount is paidto keep in force an insurance on health of any member of that HUF

d) In Case the amounts are paid in (a) or (b) or (c) on account of preventive

health check up , the deduction for such amounts shall be allowed to the extent itdoes not exceed in aggregate Rs. 5,000 /-.

e) For the purpose of deduction, the payment shall be made by

i. Any mode, including cash. In respect of any sum paid onaccount of preventive health check up.

ii. Any mode other than cash in all other cases.

Note: If the sum specified in (a) or (b) or (c) is paid to effect or keep in force aninsurance on the health of any person specified therein who is a senior citizen,then the deduction available will be upto Rs.20,000/-. Here senior citizen meansthe person who is of sixty year or more during the previous year.

Provided that such insurance is in accordance with the scheme framed by

a) The General Insurance Corporation of India as approved by theCentral Government in this behalf or;

b) Any other insurer and approved by the Insurance Regulatory andDevelopment Authority.

5) Jeevan Aadhar Plan (Sec.80DD) :

Deduction from total income upto Rs.50000/- allowable on amount deposited withLIC under Jeevan Aadhar Plan for maintenance of an handicapped dependent(Rs.1,00,000/- where handicapped dependent is suffering from severe disability)


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6) Exemption in respect of commutation of pension under Jeevan Suraksha& Jeevan Nidhi Plans:

Under Section 10(10A) (iii) of the Income-tax Act, any payment received by

way of commutations of pension out of the Jeevan Suraksha & Jeevan NidhiAnnuity plans is exempt from tax under clause (23AAB).

7) Income tax exemption on Maturity/Death Claims proceeds under Section10(10D)

Under the provisions of section 10(10D) of the Income-tax Act, 1961,Maturity/Death claims proceeds of life insurance policy, including the sumallocated by way of bonus on such policy (other than amount to be refunded underJeevan Aadhar Insurance Plan in case of handicapped dependent predeceases theindividual or amount received under a Keyman Insurance Plan) ,is exempted fromincome- tax. However any sum ( not including the premium paid by the assessee )received other than death claim under an insurance policy issued on or after the1st day of April 2003 but on or before the 31 st day of March, 2012 in respect of

which the premium payable for any of the years during the term of the policyexceeds twenty per cent of the actual capital sum assured will no longer beexempted under this section . Further any sum ( not including the premium paid bythe assessee ) received other than death claim under an insurance policy issued onor after the 1 st day of April 2012 in respect of which the premium payable for anyof the years during the term of the policy exceeds ten per cent of the actual capitalsum assured will no longer be exempted under this section.

Documents

insurance as a tax saving tool