Income Tax Slab and Term Insurance: A Perfect Combination for Smart Tax Planning
Managing tax liabilities while ensuring long-term financial protection is a priority for many individuals. A strategic combination of the Income Tax Slab 2024–25 and term insurance allows individuals to lower their taxable income while building a safety net for their families.
Term insurance isn't just about tax saving: you will get deductions for the relevant tax sections, and you will also get full life cover. Term insurance is also a long-term financial plan, and depending on the tax slab applicable to you, it can be used for both short-term and long-term purposes.
Understanding the Income Tax Slab 2024–25
There are two structures in the Income Tax Slab 2024–25:
- Old Regime - which has multiple deductions like life insurance premiums, investments, and loans.
- New Regime - which has reduced tax rates and does not follow most deductions.
Individuals opting for the old regime can utilise tax-saving investments, such as life insurance, PPF, and ELSS, to reduce their taxable income. The selected regime will be based on income, outgoings, and allowable deductions.
How Term Insurance Can Assist with Tax Planning
Term insurance is a life cover that provides an assured benefit to the policyholder's nominee in the event of their passing away within the term of the plan. Besides offering security, it provides tax-saving opportunities under existing regulations.
A deduction of up to ₹1.5 lakh is available under Section 80C for life insurance premiums. This lowers the taxable income, especially for individuals in higher income brackets.
Disclaimer: Section 80C benefits are available under the old tax regime.
Relevance of Term Insurance Tax Benefit
For individuals under the old tax regime, the term insurance tax benefit becomes highly relevant. It is particularly helpful for those with annual incomes above ₹5 lakh. Unlike investment-only instruments, term insurance prioritises financial protection with tax benefits as an added advantage.
Plans from Axis Max Life Insurance include useful features such as:
- Return of Premium – Refund of all premiums paid if the life insured outlives the term
- Critical Illness Cover – Lump sum payout in case of diagnosis of specific illnesses
- Policy Continuance Benefit – Policy remains active with waived premiums in case of critical illness or permanent disability
These features offer peace of mind during uncertain times and ensure that financial goals are not disrupted due to medical or income emergencies. Additionally, it can help provide financial relief by maintaining coverage even when the insured is unable to make a payment.
Tax Planning Example with Term Insurance
The example is:
Income: ₹10.5 lakh
Investments Covered Under Section 80C: ₹1.5 lakh (the premium for term insurance is ₹30,000)
Gross Income: ₹10.5 lakh
Deductions Under Section 80C: ₹1.5 lakh
Taxable Income: ₹9 lakh
Tax Savings: Up to ₹45,000 (Depending on slab)
By electing the old regime and making investments in the eligible instruments, tax liability will be reduced, but the life cover stays intact.
Suitability of Term Insurance for NRIs
Term insurance products are also available to meet NRIs' needs to protect their family's financial future in India. These policies can be purchased from abroad; plans are valid for residents of the UAE, Saudi Arabia, the UK, the US, and Canada.
Axis Max Life Insurance has NRI plans that have features to cater to the different needs of Indians living in foreign countries.
- Adequate Life Cover - These policies offer substantial sums assured to provide family security for families in India.
- Payout Options - NRI Term Insurance plans have different payout options. One can choose to receive the payout (sum assured) as a lump sum, monthly income, or a combination of both.
While tax benefits may not be applicable under foreign tax systems, term insurance policies purchased in India offer the advantage of affordable premiums and consistent financial protection for beneficiaries living in India.
Things to think about
When it comes to tax slab and insurance coverage, we should be thinking about:
- The old regime allows a deduction for claims under Section 80C.
- Purchase term plans earlier in your life for lower premium costs.
- Consider if there are any add-ons that could apply to you, such as critical illness riders or return of premium.
- Review insurance coverage on a periodic basis, and importantly, when income levels change.
- Discover both protection and long-term savings features.
In addition, all people should stay on top of reviewing their financial risk circumstances to avoid having insurance and tax-saving strategies aligned with lifestyles with different responsibilities or income levels.
Conclusion
Successful tax planning demands a considered approach that combines savings and protection. The Income Tax Slab 2024-25 can be maximised with an effective term insurance plan. This mix appeals to both salaried employees and business people looking for organisation, clarity in tax structuring and insurance to protect their beneficiaries.
Term insurance not only secures the financial future of your family but also reduces tax liability under the old regime. It's also structured in conjunction with other eligible investments to give a complete tax-efficient structured financial plan. A policy from Axis Max Life Insurance will offer options to help you accomplish these objectives through affordable coverage with flexible benefits as well as a trustworthy claims experience.