A guaranteed return insurance plan is one of the beneficial financial instruments to secure your family by ensuring a life cover and a savings benefit. However, it is important to realise that a guaranteed return plan provides these benefits while saving on tax. So, what is the guaranteed return insurance plan, and how can it help you save on taxes? Here is a detail to help you out. 

What is a Guaranteed Return Insurance Plan?

A guaranteed return plan is a comprehensive life insurance plan that provides a life cover and a guaranteed return. The life cover will provide a lump sum to your family in case of your unexpected demise during the policy term. And the guaranteed return will be provided to you by the insurer as a maturity benefit. 

Insurers offer varied, flexible features to modify the product solution to your advantage. For instance, Tata AIA life insurance provides flexible payout options such as receiving the maturity benefit as a lump sum, regular income, or a mix of both. 

But, how does the guaranteed return plan help you save on tax? 

Tax Savings Benefit of Guaranteed Return Insurance Plan

The Income Tax Act 1961 provides a range of tax deduction and exemption benefits for investments made in different financial instruments, and it applies to the guaranteed return plan. Here is a detail about it.

Section 80C – Section 80C provides tax deduction upto ₹1,50,000 on various financial instruments. Therefore, the annual premium paid towards the guaranteed return insurance plan qualifies for the tax deduction under this section. It will reduce the taxable income directly.

Section 10(10D) – The payout benefit from life insurance plans will qualify for a tax exemption under Section 10(10D) of the Income Tax Act, 1961. The tax exemption applies to payouts such as the death benefit, maturity benefit, and any other accrued bonuses. Also, there is no upper limit to the tax exemption. 

However, to ensure your guaranteed return plan qualifies for the above tax benefits, here are the eligibility criteria:

1. The premium amount paid should be less than 10% of the sum assured for the life insurance plans purchased after April 1, 2012. 
2. The premium should be less than 20% of the sum assured for all policies issued between April 1, 2003, and March 31, 2012.
3. And, the insurance premium should not be more than 15% of the sum assured for policies bought before April 1, 2013, for:
   1. Individuals with ailments specified under Section 80DDB. 
   2. Disabled individuals as specified under Section 80U.

However, if the maturity benefit is not applicable for tax exemption under Section 10(10D) of the Income Tax Act, 1961, it will be subject to Tax Deducted At Source(TDS).

Tax saving investments such as the guaranteed return plan can be employed to derive maximum benefits. For example, as the returns are guaranteed in the plan, you can accurately calculate the required fund for a money goal and decide on the premium and policy term. It will help you generate insurance guaranteed returns, ensuring tax benefits. It might be a small fraction of the amount, but it will be a large fund earned in the long term.

Conclusion

Life insurance tax benefits are extremely sought after for their economic importance. It encourages individuals to invest in varied financial instruments to avail of the financial advantage. And a guaranteed return insurance plan is one such option that provides a life cover and guaranteed returns while saving on tax. The premium amount paid for the guaranteed return policy and the payout received from the policy will qualify for the tax deduction and exemption benefits.