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ULIP - Tax saving investment by Finserv Markets

A detailed on ULIP - Tax saving investment by Finserv Markets

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ULIP - Tax saving investment by Finserv Markets

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  1. TAX SAVING INVESTMENT GUIDE ULIP: The Smartest Tax-Saving Tool Unit Linked Insurance Plan (ULIP) is a good investment avenue life insurance product. It is a market-linked product that has quickly gained popularity among investors. Many people are keen on investing in this product for the dual benefit it offers i.e. the benefits of a life insurance cover as well as the opportunity to invest in various market instruments. However, before you decide to park your money in ULIPs, you need to understand what it is, and how it can benefit you. What is ULIP? A ULIP is an investment cum insurance product that is slightly different from many other investment products. Unlike other products that help you achieve a singular goal of wealth creation, ULIPs offer you the opportunity to achieve the dual goal of security as well as wealth creation. By investing in this product, you can a 10x life insurance cover as well as the opportunity to invest in various market instruments such as stocks, bonds or funds (equity, debt or a hybrid). Benefits of ULIPs Tax Benefits Impact Of LTCG Flexiblity Return On Investment Why invest in ULIP? Tax Benefits: Now that you know what ULIPs are, you need to understand the benefits of investing in the same. When you invest in a ULIP plan, the premium amount paid by you is eligible for a deduction under Section 80C of the Income Tax Act, 1961. There is a limit of INR 1.5 lakhs on the deductible amount. However, the premium paid should be below 10% of the sum assured in the policy. 1

  2. You can also enjoy tax-free withdrawals in a ULIP. You can withdraw the money when the policy matures, or in case of the death of the policyholder or partially withdraw the money when you wish to, after the lock-in period/maturity. The death benefit will remain tax-free. In case of maturity of the policy or partial withdrawal post maturity, the proceeds will be exempt under Section 10 (10D) of the Income Tax Act, 1961. Please note, a ULIP plan comes with a lock-in period of 5 years. Impact of LTCG: Moreover, ULIP plans are also exempt from LTCG or Long-Term Capital Gains tax. This is also one of the reason why ULIPs have gained popularity over some of the existing investment products like Mutual Funds and ELSS (Equity Linked Savings Scheme) which are taxed at 10% on profits exceeding Rs. 1 Lakh. Flexibility: Further, ULIP plans allow you to choose your preferred asset class. This means you get to choose between stocks, bonds or other money market instruments. You can also opt for a combination of equity and debt depending on your risk appetite and life stage goals. You can easily switch between funds if you think that one fund is not performing as per your expectation. Thus, ULIPs are not only considered as an ideal investment option as compared to other investment products available in the market, but it is also a smart tax-saving tool due to deductions under Section 80C and 10D. With the ability to generate wealth over a period, ULIPs are considered as an ideal investment option for individuals across various age groups looking to invest for a long -term with a definite goal or objective. What Is EEE, ETE & EET & How Does It Impact Your Tax Saving Plan? Exempt-Exempt-Exempt (EEE), Exempt-Taxable-Exempt (ETE) and Exempt-Exempt-Taxable (EET) are three important terms in the context of investments made for the purpose of saving tax. In general, there are two prime motivations for investing: either to save tax or to grow your wealth. Your investment will be taxed at three stages – when you put your money in an 2

  3. instrument (Stocks, Bonds or Funds), when there is an interest yielded on the investment and when you withdraw the entire amount (returns and your principal sum). To know more on this, we have provided a detailed overview of the above investment categories and their corresponding exemptions: EEE-Exempt Exempt Exempt The first exempt of this ULIP implies that your investment is qualified for a deduction. Hence, the amount of your salary, which is equivalent to the invested amount will not be taxed. The second exempt denotes the accumulated interest over a period, which is also not taxable. For the next exempt, your income generated from the investment will not be taxed when you make a withdrawal. This policy is perfect for customers who wish to make long-term investments, for example, Public Provident Fund and Employee Provident Fund. Few other plans like equity-linked savings schemes and life insurance policies provided by Bajaj Allianz at Finserv Markets also qualify for the EEE status. By choosing Bajaj as your insurer, you’ll be allowed unlimited free switches between funds. Recently, the new pension system was classified as EEE in the revised draft of Direct Taxes Code, but insurance cum investment plans and ELLS were moved to the EET category. EET-Exempt Exempt Taxable EE here means that during the stages of contribution and accumulation, your invested amount is tax exempt. The T here implies that the total amount will be taxed during any withdrawal. As the lump-sum amount is taxable during withdrawal, the interest obtained is often low. However, your tax slab will have a bearing on the interest earned; this could often mean lucrative returns. For availing a plethora of fund options to invest in, choose Bajaj Finserv today! ETE-Exempt Taxable Exempt 3

  4. The foremost exempt (E) signifies that your income amount equivalent to the investment money is qualified for deduction as per the total exemption limit. However, the interest obtained from these investments is taxable and is therefore denoted as T. The final E implies that the lump-sum amount withdrawn up on maturation is tax-free. This means, only the interest part of your investment will be taxed. Now that we have discussed the above mentioned ULIP benefits, based on your life goals, select either one of the ULIP plans – Bajaj Allianz Future Gain or Bajaj Allianz Life Goal Assure ULIP, available on Finserv Markets. You can always visit the Finserv Markets website or contact us for further details. Tax Benefits for Senior Citizens – Budget 2019 While the Indian middle-class is happy with the recent budget, there were no specific tax benefits mentioned for senior citizens. This is rather unfortunate as many senior citizens in India desperately need certain benefits to live comfortably. However, all is not bleak as there were certain introductions that could indirectly benefit senior citizens. One of them is the full tax rebate offered to individuals earning up to Rs.5 Lakh per annum. This will greatly benefit both senior citizens and super senior citizens who don’t have a fixed income or are living off pension. This was recently announced by Piyush Goyal – the acting finance minister. He pointed out that the deductions on senior citizens’ medical expenses can be used to bring the taxable income below the threshold of Rs. 5 Lakh. According to Mr. Goyal, two income categories of TDS threshold should be raised so that it could potentially benefit senior citizens. He has proposed increasing the TDS threshold on interest derived from post office and bank deposits from Rs. 10,000 to Rs. 40,000. The finance minister also suggested increasing the TDS threshold for income earned from rent from the current Rs.1.8 Lakh to Rs.2.4 Lakh per annum. He has also proposed the exemption of income tax on notional rent on a second self-occupied house. This will be beneficial for people who for a number of reasons are compelled to maintain two different houses, especially for the care of their parents. While this may not benefit all senior 4

  5. citizens, it could certainly reduce the tax burden on many Indian citizens over the age of 60 or their family members. Standard deductions were recently increased from Rs. 40,000 to Rs.50,000. This should also help senior citizens in a number of ways. He also further proposed certain reforms in the pension scheme. There are many ULIP plans (Unit Linked Insurance Plan) in India which could greatly benefit the senior citizens of our country. Let’s take a look at some of the ULIP benefits for senior citizens: There are many ULIPs designed for senior citizens that will take care of their needs after retirement. By applying early, you can avail monetary benefits which will be a huge surplus after you hang up your boots. The financial benefits obtained from such plans can provide for medical emergencies. ULIPs are very flexible and transparent. Now that you’re aware of the various benefits of ULIPs, you can buy a ULIP on Finserv Markets, which you think suits your goals the best. Detailed Summary of Tax Saving Deductions in Income Tax Recently, the government, led by our Prime Minister, Shri. Narendra Modi, announced a slew of changes in personal income tax rules. A full tax rebate has been announced for people who are earning a net taxable income of up to Rs. 5 lakh. However, even if you have a taxable income you need not worry. There are several provisions in the income tax laws which can save you from paying heavy taxes. Following is a detailed summary of the deductions you can avail to save taxes. Deductions under Section 80C, Section 80CCC & Section 80 CCD (Investments, Life Insurance, Pension) 5

  6. Section 80C – Deductions on Investments: – In this section, individuals can claim deductions up to Rs. 1,50,000, this deduction is allowed for both individuals and HUFs. Section 80CCC – Deductions on Insurance Premium for Annuity Plan: – In this section an individual can claim a deduction for any amount paid/deposited in any annuity plan of LIC or any other insurer, the plan must be for receiving a pension fund referred under Income Tax Section 10(23ABB). Pension received at the time of surrender of the annuity plan is taxable in the year of receipt. Section 80 CCD – Deductions on Pension Contribution: – i. Section 80 CCD (1): Employee’s contribution – A maximum deduction of 10% of salary (in case the tax payer is an employee) or 20% of salary(in case the tax payer is self-employed) is allowed to individuals who make deposits to their pension account. ii. Section 80 CCD (1B): Deduction for self-contribution to NPS – This is a new section wherein individuals can claim an additional deduction of up to Rs. 50,00o for the amount deposited by taxpayers to the NPS account or contributed to Atal Pension Yojana. iii. Section 80 CCD (2): Employer’s contribution to NPS – This is an additional deduction up to 10% of the salary of the employee which is allowed for employer’s contributionto employee’s pension account. Deductions under Section 80D, Section 80DD, Section 80DDB (Health Related Expenses) Buying Health Insurance not only helps cover healthcare costs but also helps you save taxes. The premium paid towards your personal or Family Health Insurance policy is eligible for tax deductions up to 25,000 under Section 80D. Additionally, if your family Health Insurance plan includes senior citizens, you will be eligible for an additional tax deduction of up to Rs. 30,000. Section 80DD offers deductions for medical treatment of handicapped dependents while Section 80DDB covers the cost of treatment for specific diseases. 6

  7. Deductions under Section 24 (Home Loans) The interest paid on Home Loans can be claimed as deductions under Section 24 of the Income Tax Act. In some cases, the maximum deduction allowed under this section is Rs 2,00,00 per year, while for others there may be no such limits. Deductions under Section 80E (Education Loans) The interest paid on Education Loans can be claimed as a tax deduction under Section 80E of the Income Tax Act. However, this deduction is only applicable on the interest amount and not on the principal. Deductions under Section 80CCG (Rajiv Gandhi Equity Savings Scheme) Rajiv Gandhi Equity Savings Scheme was introduced in Budget 2012. However, due to limited number of assesses availing this deduction, from 1st April 2017 this scheme is being phased out. Thus, new investors from financial year 2017-18 will not be eligible to avail this deduction. Only Individuals who have claimed deduction in financial year 2017-18 or earlier than that shall be allowed to a deduction there on if he/she is eligible for the same. Deductions under Section 80G (Donations) Any donations made for charity and philanthropic purposes can be claimed as a deduction under the Section 80D of the Income Tax Act. In some cases, up to 100% of the donation made can be claimed as tax deductions. It is advised to not misuse these deductions and claim only the ones you are eligible for, or you may be penalized by the Income Tax department. Also, make sure to submit all the documents at the time of filing your Income Tax return. You are now all set to save a good amount of tax and make smarter investment decisions. 7

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