5 Rreasons - why insurance won't save tax
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Almost 70% of all insurance policies is bought in the last three months of a financial year. This indicates that many of these plans have been bought with the sole purpose of saving tax. The majority of buyers don’t care what they are buying as long as it helps them save tax.
If you are such an investor, be careful when you buy an insurance policy. Your investment will give you tax breaks this year but may not be eligible for any deduction in the coming years. The proposed Direct Taxes Code (DTC), which comes into effect from 1 April 2012, has laid down very stiff conditions for the deduction of the premium from the taxable income and the exemption for income from insurance policies.
One of the key insurance-related provisions of the DTC is that a policy will not be eligible for tax deduction if it offers a life cover of less than 20 times the annual premium.
This means if the premium of an endowment insurance policy or a Ulip is Rs 20,000, it should offer a life cover of at least Rs 4 lakh to be eligible for tax deduction in the coming years. If this condition is not met, not only will the premium lose tax benefits but even the income accruing from the policy will be taxable.
http://www.policywala.com/attachment...8&d=1294688047
Source - economictimes.com
