Rajkotupdates.news : tax saving of fd and insurance tax relief, Saving money is a crucial aspect of financial planning, and tax-saving is an essential component of this process. Two popular options for tax-saving are fixed deposits (FDs) and insurance.

Both offer tax relief, but they work differently and suit different people based on their financial goals and needs. In this article, we will explore the tax-saving benefits of FDs and insurance and how they can help individuals reduce their tax liability.

Tax-saving Fixed Deposits:

Rajkotupdates.news : tax saving of fd and insurance tax relief, Fixed deposits are a low-risk investment option that offers assured returns. When you invest in a fixed deposit, you deposit a lump sum amount for a specific period, and the bank pays you interest on this amount at a predetermined rate.

The interest earned on fixed deposits is taxable. However, many banks offer tax-saving fixed deposits that come with tax benefits under Section 80C of the Income Tax Act, 1961.

Under Section 80C, individuals can claim a tax deduction of up to Rs. 1.5 lakhs per financial year on investments made in tax-saving instruments, including fixed deposits. The tax-saving fixed deposits have a lock-in period of five years, and the interest earned on them is exempted from tax up to Rs.

50,000 per financial year under Section 80TTB. However, if the interest earned on the tax-saving fixed deposits exceeds Rs. 50,000 in a financial year, it will be taxable as per the applicable tax rates.

Tax-saving fixed deposits are an ideal investment option for individuals who want to earn a fixed return with minimum risk and save tax at the same time. However, investors should note that tax-saving fixed deposits have a lock-in period of five years, and premature withdrawal is not allowed. Moreover, the interest rate on tax-saving fixed deposits is generally lower than regular fixed deposits.

Insurance Tax Relief:

Life insurance is another popular investment option for tax-saving. Under Section 80C of the Income Tax Act, individuals can claim a tax deduction of up to Rs. 1.5 lakhs per financial year on investments made in life insurance policies. The premium paid towards life insurance policies is deductible from the taxable income, reducing the tax liability.

Moreover, under Section 10(10D) of the Income Tax Act, the proceeds received from life insurance policies are exempted from tax. This means that the sum assured received on maturity or the death benefit paid to the nominee is entirely tax-free. This tax exemption makes life insurance an attractive investment option for individuals who want to save tax and secure their family’s financial future.

Life insurance policies come in different types, including term insurance, endowment policies, and unit-linked insurance plans (ULIPs). While all types of life insurance policies offer tax-saving benefits, they work differently and suit different financial goals. For example, term insurance policies offer pure life cover and do not have any savings component.

They are ideal for individuals who want to secure their family’s financial future in case of an unfortunate event. On the other hand, endowment policies and ULIPs offer both life cover and savings component. They are suitable for individuals who want to save for long-term goals such as children’s education or retirement.

Conclusion:

Rajkotupdates.news : tax saving of fd and insurance tax relief, Tax-saving fixed deposits and life insurance policies are two popular investment options that offer tax relief under Section 80C of the Income Tax Act. While tax-saving fixed deposits offer assured returns with minimum risk, life insurance policies provide a combination of life cover and savings component.

Both investment options have their benefits and limitations and suit different financial goals and needs. It is advisable to consult a financial advisor before investing in any tax-saving instrument to make an informed decision.

FAQ

What is a tax-saving fixed deposit?

A tax-saving fixed deposit is a type of fixed deposit that allows individuals to claim tax benefits under Section 80C of the Income Tax Act. The interest earned on these fixed deposits is also exempted from tax up to Rs. 50,000 per financial year under Section 80TTB.

What is the lock-in period for tax-saving fixed deposits?

The lock-in period for tax-saving fixed deposits is five years. Premature withdrawal is not allowed.

What is the maximum tax deduction allowed under Section 80C for tax-saving fixed deposits?

The maximum tax deduction allowed under Section 80C for tax-saving fixed deposits is Rs. 1.5 lakhs per financial year.

Can I withdraw the amount invested in a tax-saving fixed deposit before the lock-in period?

No, premature withdrawal is not allowed in tax-saving fixed deposits.

What is the tax-saving benefit of life insurance?

Individuals can claim a tax deduction of up to Rs. 1.5 lakhs per financial year on investments made in life insurance policies under Section 80C of the Income Tax Act.

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