IN UNIT LINKED INSURANCE POLICIES, INVESTMENT RISK IN THE INVESTMENT PORTFOLIO IS BORNE BY THE POLICYHOLDER
Income Tax is a Direct Tax that is levied on the net income earned by an individual, company or any other person. The amount that is calculated as income tax is calculated as a percentage on the earnings of the said person or entity. Each person is required to declare their earnings to the government by way of an annual income tax return and pay their taxes due as per the applicable laws. Non-payment of tax and non-filing of tax returns is punishable by the law.
In India – income tax is levied by the Government of India under the Income Tax Act, 1961. The money collected into the government coffers is used to pay for expenses on infrastructure, development, fund other public services and other such expenses needed to perform the government tasks and obligations that are required to run a country.
India, like most other countries, employs a progressive system of taxation, where the rate of tax is higher for high income earners. There are a series of deductions available on the tax payable in respect of certain expenses or investments. The savvy taxpayer makes note of these and does adequate tax planning to minimize their tax liability.
In 1860, income tax was introduced in India for the first time by Sir James Wilson, the pre-independence finance minister of India. He enforced the Income Tax Act, 1860 to cover up for the losses sustained by the government due to the military mutiny of 1857. From time to time, the act was replaced with different licence taxes. In 1886, a separate Income Tax Act was passed, which was further amended by the Income Tax Act of 1918 and 1922. The Income Tax Act of 1922 became highly complicated due to several changes. Hence, the Income Tax Act of 1961 was introduced on April 1, 1962.
Presently, the Income Tax Act of 1961 is applicable in India. Over the years, the act has undergone several changes, even those of far-reaching nature, as proposed by the Union Budget every year. Currently, the act levies income tax under the following five heads:
An Indian citizen below the age of 60 years, earning more than ₹2.5 lakhs annually is liable to pay income tax as per a pre-determined percentage. Indian citizens above the age of 60 years and earning more than ₹3 lakhs are liable to directly pay taxes to the Government of India.
Apart from an individual, the following entities also have to pay taxes on their annual income:
Broadly, there are two kinds of taxes:
Direct Taxes are taxes levied directly on the person who is ultimately bearing the cost of the tax. Income Tax is the most prominent form of Direct Tax.
Indirect Tax are taxes that are levied indirectly on goods/ services such as Goods and Service Tax on production of goods, transport of goods, sales of goods and services etc. These taxes are levied on the person providing these goods/ services but are borne by the ultimate user of the goods and services. GST, Professional Tax, Customs Duty etc. are examples of Indirect taxes.
Within the purview of Income Tax (IT) which is a Direct Tax, there are certain terms to be understood with respect to taxation. Some of these are:
Assets are considered long term or short term on the basis of what they are and how long they are held.
Shares and securities of a company that are listed on a recognized stock exchange, mutual funds, units of equity oriented mutual funds and zero-coupon bonds are considered long term when they are held for a period greater than 12 months.
Immovable property such as land, building, house etc. are considered long term when they are held for a period greater than 24 months.
Movable property such as jewellery and other assets are considered long term when they are held for a period greater than 36 months.
This distinction is important as the income tax rates applied to capital gains differ greatly.
Where short term capital gains are taxed at 15% or the rate of the individuals slab as applicable, long term capital gains are taxed at 10%/ 20%. Also, the long-term capital gains provides the option of indexation benefit, which is basically the cost of the asset adjusted for inflation so that only real gains are taxed.
TDS means that the person who is responsible for making payments to you will deduct tax before paying you the balance amount. In this way, tax is deducted at the source of income itself. On deducting the tax, this amount has to be paid by the person deducting into the governments account within the stated time period and they will issue you a TDS certificate.
This TDS certificate is proof of the tax having been deducted from your income and the proof you need to claim the same as credit.
Examples of payments on which Tax is deducted at source is Salary, interest on fixed deposits in banks, other payments to vendors exceeding the limits specified etc.
TDS is applicable to various types of income, such as salary, interest, rent, commission, etc. It is the responsibility of the person making the payment to deduct TDS and deposit it with the government. The individual whose income is being taxed can then claim credit for the TDS that was paid by presenting a TDS certificate or Form 26AS.
|Particulars||Limit (in ₹)||TDS Rate (in %)|
|Salaries||Normal slab rate|
|Premature EPF withdrawals||50,000||10|
|Interest on securities||10,000||7.5|
|(8% Taxable Savings Bonds, 2003, 7.75% Taxable Savings Bonds, 2018)|
|Interest on securities||5,000||10|
|(local authority, listed debentures, others)|
|Interest from a banking co., a co-operative society or a post office||40,000||10|
|Horse race winning||10,000||30|
|Contractor (consolidated annual payment)||1,00,000|
|Other than company||10|
|Life insurance maturity||1,00,000||5|
|Repurchase mutual funds||20|
|Transfer of immovable property except agricultural land||50,00,000||1|
|Rent by Individual or HUF||50,000/month||5|
|Joint development agreement||10|
|Call centre operator fee||30,000||2|
|Payment of income for units of:||5,000||10|
|Compensation on transfer of immovable property except agriculture land||2,50,000||10|
|Income from business trust||10|
|Distribution of rental earnings||10|
|Investment fund income||10|
|Annual Income||New Tax Slab||Old Tax Slab|
|Up to ₹2.5 lakhs||NIL||NIL|
|₹2.5 – ₹5 lakhs||5%||5%|
|₹5 – ₹7.5 lakhs||10%||20%|
|₹7.5 – ₹10 lakhs||15%||20%|
|₹10 – ₹12.5 lakhs||20%||30%|
|₹12.5 – ₹15 lakhs||25%||30%|
|Above ₹15 lakhs||30%||30%|
The new tax regime allows individuals and HUFs to pay lower taxes without claiming deductions under different sections. Unlike the old tax regime, the new tax regime does not differentiate taxpayers into age groups.
Additionally, new tax regime has not replaced the old tax structure; it is an option available to the taxpayers.
India follows a progressive system of taxation. This basically means that the income tax rates are determined as per threshold amounts set by the government and for lower amounts a lower rate of tax is levied and as the income slab goes higher the rate of tax levied is greater.
|Total Income||Rate of tax|
|Up to Rs. 3,00,000||Nil|
For calculating your Income Tax Payable, there are certain broad steps to be undertaken.
Let’s understand the steps in some detail.
Income is calculated under the following heads:
Income from Salary – All income from an employer that is received as salary is to be offered as Salary income earned. This is detailed in the Form 16 given by the employer to the employee.
Income from Capital Gains – Income earned on sale of capital assets is taxable under the head of Capital Gains. Capital Assets include assets such as land, building, jewellery, stocks, bonds, etc.
Income from house property – Rental income earned from owned house property is taxable under this head.
Income from business / profession – The profits and gains earned from any business or profession are taxable under this head.
Income from other sources – All other income that is not included under the other heads of income fall under this residual head of income. This includes interest income, pensions received, dividend received, winnings from lottery or gambling, gifts received etc. The classification of income is important from the perspective of filing returns. All income is calculated on the basis of the financial year as defined in the Income Tax Act as the twelve-month period from April 1st of a year to March 31st of the following year. For example, financial year 2022-23 would mean the period between 1st April 2022 to 31st March 2023.
The Income Tax Act allows some deductions from the Income that has to be taxed. This is the step that can help you save a lot of tax on your income for the year. Sections 80C to 80U of the Income Tax Act, 1961 specifies these deductions. In addition, there are other deductions under Section 16, 24 etc which could be availed.
So what are these deductions from taxable income and how can a person get the income tax benefits³ of these?
Spend on a good life insurance policy – Not only does a good life insurance policy provide coverage to your loved ones in the event of your death, but it makes for good financial planning as well. The premium paid for life insurance policies of the taxpayer for self and for his dependent wife and children are deductible from tax under Section 80C. This amount is deductible if the annual premium is less than 10% of the sum assured if the policy has been issued after 1st April 2012. For policies issued prior to 1 April 2012, in order to claim this deduction, the premium paid should not exceed 20% of the sum assured. Section 10(10D) of the Income Tax Act, 1961 provides for certain exemptions with respect to proceeds from life insurance policies. When the premium paid on the policy does not exceed 10% of the sum assured for policies issued after 1 April 2012 and 20% of sum assured for policies issued before 1 April 2012– any amount received on maturity of a life insurance policy or amount received as bonus is fully exempt from Income Tax under Section 10(10D). Also covered here are policies taken after 1 April 2013, on the life of a person with a disability or a disease specified under Sections 80U and 80DDB respectively, where the amount received on maturity is tax-free provided the premium paid does not exceed 15% of the sum assured.
As per Union Budget 2023, proceeds from life insurance premium over the annual premium of ₹5 lakh would be taxable from new financial year i.e. from 1st April 2023. However, the new income tax rule will keep death benefit on such premium would continue to remain tax exempted. Also, the new income tax rule won't be applicable on ULIP (Unit Linked Insurance Plan).. So as you can see payments paid towards life insurance policies have a twofold income tax benefit – for the years while paying the premium as well as for the maturity proceeds.
Tax Saving³ Investments under Section 80C - There are certain financial investments which has been listed by the Income tax laws as deductible from your taxable income. The key motive of this incentive seems to incentivize people to perform proper financial planning and structuring for present and future. The key point to be noted is that you are creating investments for yourself and receiving income tax benefits³ on them. However, this benefit is given to individuals and Hindu Undivided Families only.
Investments can be made under section 80C to the extent of Rs 1,50,000. Apart from this, investment in notified pension schemes provide additional benefit to the extent of Rs 50,000 under section 80CCD(1B). This total of Rs.2,00,000/- in investments can save you an amount of Rs.60,000/- if you fall under the 30% tax bracket.
Some of the key tax-saving investments provided under Section 80C are:
Spend on a great health insurance policy for self and family: The health care costs have left no doubt in anyone’s mind that medical insurance is an absolute necessity for every single person. The lack of adequate medical insurance has brought many an unfortunate to the brink of financial ruin. The Government in its efforts to encourage the purchase of medical insurance has offered a tax exemption under section 80D.
Under Section 80D an amount of Rs.25,000/- is allowed as a deduction from taxable income when this amount is paid for medical insurance of self, spouse and children. In case of tax payer being above the age of 60 years the higher deduction is shall be available for Rs.,50,000/-.
For a person who pays for health insurance of dependent parents an additional Rs.25,000/- is allowed as deduction. In case the parents are aged above 60 years then a deduction of Rs.50,000/- is allowed.
In total a maximum deduction of Rs.1,00,000/- can be claimed under this section which gives a tax saving³ of over 30,000/- in the 30%slab. As you can see these savings can be quite substantial. Using an income tax calculator will help you know the benefit you can gain.
You can also avail deduction of Rs. 5,000 for the cost incurred for preventive health check-ups for self, spouse, children or parents. The limit of Rs.25,000/50000 includes Rs.5,000 on preventive health check-up.
Make a note of any expenses incurred for a disabled dependent relative. Under Section 80DD – any expenses incurred for a disabled dependent – depending on the extent of their disability is allowed to be claimed as a deduction from taxable income. The expenditure incurred for their treatment as well as maintenance can be claimed under sections 80DD and 80DDB respectively.
Under Section 80DDB - If persons for whom medical treatment is taken are:
Upto 60 years – a deduction of Rs.40,000/- is allowed. Over 60 years – the deduction allowed is Rs.1,00,000/-.
Under Section 80DD - If the disability if more than 40% but less than 80% then the deduction allowed is Rs.75,000 For disability of 80% or more – which is classified as a severe disability – a deduction of Rs.1,25,000/- is allowed.
Interest paid on loan taken for higher education: In another case we see tax deductions being held out as an incentive for reform, under Section 80E of the Income Tax Act, 1961. In case of loans taken for higher education of self or spouse or children from approved financial institutions, the interest paid thereon is allowed as deduction. It is better to plan your finances and take a loan for education for the period where the benefit is available.
Interest paid on loans taken for purchasing a single residential property is also deductible from tax under Section 80EE. So it might be better to take a housing loan if you don’t already have a house property in your name as a tax planning measure.
Donations made to a recognized institution under 80G: If you donate an amount every year – finding a recognized institution that you can donate to makes your donation amount deductible from Taxable income. The deduction is available depending on the charity chosen. The deduction allowed can be 50% or 100% of the amount donated depending on the charity donated to and the qualifying amounts. The qualifying limit is 10% of the gross total income of the person.
For example donation to the Prime Minister’s relief fund is eligible for 100% deduction without any qualifying limit whereas donation to associations to promote family planning or sports allows 100% deduction subject to a maximum limit. In some examples donations to certain charities gives you 50% of the amount donated as deduction. For example donation to PM’s drought relief fund gives 50% deduction without any qualifying limits and the donation to some other approved charity gives 50% deduction with qualifying limit.
Interest received on savings bank account held by an individual: Section 80TTA allows interest income from saving bank account/s to be taken as a deduction subject to a maximum amount of Rs.10,000/-. This is only for Individuals and HUF’s.
Specific Deductions: There are many sections that allow specific deductions for example for an author on royalty income or to a patent holder or some other such. It is a good idea to consult a tax practitioner with full details of the sources of income so they might guide you on all possible tax saving³ measures that can be taken.
Section 24 allows deduction of interest paid for purchase of house property: in case of house property bought the interest expense paid on the purchase of it can be claimed as a deduction upto Rs. 200000 under Section 24.
As per the slab rates and basic rates discussed for all kinds of assessee’ s each person’s tax liability will be calculated on the basis of slab rate as applicable. Once the list of sources of income are ready and the deductions have been claimed. However, income from Long term capital gain and Income from gambling would be taxed at different rates of tax and the remaining income is taxed as per the slab rates given.
Tax rebate is a deduction allowed from the tax calculated as payable to government. This rebate is given under Section 87A of the Indian Income Tax Act, 1961. Under Section 87A a tax rebate is allowable to those Individuals whose total annual income falls below Rs.5,00,000. This rebate is limited to a maximum of Rs.12,500/-.
This in effect causes that - no tax is payable for income under Rs.5,00,000/- of Income but it is important to note that it is still essential to file a return of income. Individuals with income exceeding Rs.5,00,000/- do not get the benefit of any rebate under section 87A.
By way of TDS, TCS and advance taxes has to be deducted from the Tax amount calculated. The balance amount is either the Tax payable or tax refund receivable. All certificates of Tax deducted at source, tax collected at source and challans of advance tax paid have to be maintained securely. Once the tax liability is determined the prepaid sums of tax has to be deducted from the payable amount and the balance amount is either the amount left to be paid or they may be a refund due to you, which will be claimed at the time of filing of the Tax Return.
A taxpayer can calculate their income tax manually or use an online income tax calculator. The rate of income tax is determined as per the annual income in the income tax slab. For instance, for a salaried taxpayer, the income from salary is calculated by including:
The Income Tax Act, 1961 allows several deductions under different Sections to help you reduce your taxable income.
Under Section 10(10D) of the Income Tax Act, any amount received under a life insurance plan is exempt from taxes. This is inclusive of bonus, interest, or any other grant received in the plan. However, this rule is not applicable for:
Sum received under Section 80DD (3)
Sum received under a Keyman Insurance Policy
Sum received other than death benefit under a life insurance plan issued on or after April 1, 2003, but before March 31, 2012. In this case, the premium payable in any of the policy years should not be more than 20% of the sum assured. For plans issued on or after April 01, 2012, the exemption is allowed on policies with premiums lower than 10% of the sum assured.
For ULIPs, the maturity payout will be tax-free if the total annual premium in the given fiscal year is under ₹2.5 lakhs.
Life insurance is a great investment because it protects you and your family as well as helps you save tax. As per the Income Tax Act, 1961, the premiums you pay towards a life insurance policy are exempt from taxes up to ₹1.5 lakh under Section 80C. Taxation relief is allowed on life insurance policies purchased for self, spouse, or dependent children.
Payment of premium on life insurance policy not only gives insurance cover to a taxpayer but also offers certain tax benefits. Various life insurance plans offer tax benefits under Section 80C of the Income Tax Act against the premiums paid including:
Edelweiss offers various life insurance plans that help you save on taxes. These include:
All Indian citizens with a source of regular or irregular income need to file their income tax return (ITR) every financial year. Even if the person falls below the taxable limit, they should file their ITR. There are different ITR forms for individuals and HUFs as per their income sources and tax-paying status such as individual, HUF, BOIs, AOPs, etc.
All Indian citizens should file their ITR because of the following uses and benefits:
▶ Tax refund: ITR forms are used to file for a tax refund in case of additional advance tax payment.
▶ Carry forward of losses: Losses such as speculation loss, capital loss, business loss, etc., can be carried forward only if the ITR is filed.
Income Tax Return is an income tax declaration which is filed by all taxpayers stating the income – sources of income, tax due and tax paid during the year. There are seven ITR form types notified by the Income Tax Department – they are ITR 1Sahaj Form, ITR 2, ITR 3, ITR 4, ITR 5, ITR 6, and ITR 7. An Income taxpayer must know which form they should fill in for filing their income tax returns. Form applicable dependents on the individual entity and their sources of income.
A simplistic guide is that:
- For individuals being a resident (other than not ordinarily resident) having total income up to Rs.50 lakh, having Income from Salaries, one house property, other sources (Interest etc.), and agricultural income up to Rs. 5000.
- is used by all who would file ITR 1 but have income greater than 50 lakhs. Also people who have Income from capital gains, Income from house property, Hold directorships in a company or hold unlisted equity assets, or foreign assets and/or have foreign income. Basically it is for Individuals and HUFs not having income from profits and gains of business or profession.
- In case Individual has Income from Business / Profession or is a partner in a firm then ITR 3 must be filed.
- is for Individuals, HUFs and Firms (other than LLP) being a resident having total income upto Rs.50 lakh and having Presumptive income from business and profession and agricultural income upto Rs.5000.
- Is to be used by LLP’s, AOP’s and BOI’s.
- is to be used by Companies who are not claiming exemption under Section 11 .
- is to be used by Persons and companies who claim exemption under Sections 139 of the Income Tax Act, 1961.
There are no separate ITR form for housewife or senior citizens. The forms are the same and based on sources of income. You can look up your sources of income and decide to file ITR for housewife, senior citizens or any other categories. You should file an income tax return³ if your income is above the exempt income tax limit, or you have lottery winnings, or you wish to claim income tax refund on tax paid, to create a proper financial base which helps with obtaining loans and visa etc. and if the tax payer is a company or firm then irrespective of profit or loss it is mandatory to file ITR.
By adhering to these rules you will find it easy to comply with the requirements of the income Tax Act, 1961 and build a good financial base for yourself. You will find online income tax calculators to assist you and you may file ITR return online easily as well. There are detailed instructions on how to file income tax returns online for salaried employees and non-salaried taxpayers.
Income Tax Filing are an important part of the government process. Not only would you be fulfilling your responsibility by you would create a solid base with your declared income. In case you have missed filing your return you can get income tax extension and there are also instructions on how to file income tax returns³ for last 3 years if you would like to right an earlier wrong.
Filing your tax returns³ is a good idea and one to be embraced to get the income tax benefit. There is an income tax helpline available for various general tax issues as well as other helplines for specific issues. You can click here to find the one that suits your query/question.
Form 16 is the form given to a salaried employee by his employer. This form contains all information about the employee such as his name, address, his PAN number, his TAN and other details such as details of employment such as a period of employment, etc. In Part B of Form 16 the form mentions the basic salary, all allowances given, HRA calculation for income tax and other deductions allowed. It includes details of payments in EPF, tax deducted and paid into government account as TDS and balance salary paid to employee. Form 16 is the only document a salaried employee needs to be able to prove income and claim TDS.
Form 16A is what the income taxpayer receives from person who deducts TDS. This form contains details such as name and address, PAN details, nature of payment, amount of payment, TDS deducted and paid along with income tax challan details and signature of person responsible for deducting and paying tax into government account.
This is the form that is required to claim the tax deducted at source as tax paid against any dues. The Form 16 online availability is now a convenient form for taxpayers. The traces form 16 can be generated from the TRACES website where all details of TDS and TCS are input by the deductors. The person has to put in their TAN number and other details as required and request the Form 16 data to be downloaded.
Pensioners whose pension exceeds the taxable limit can ask the disbursing bank to provide form 16 for pensioner’s certificates to make it easy to file their returns of income. Both these forms are important for you to file your return of income smoothly and easily.
Income tax returns³ have to be filed by person whose annual income exceeds minimum amount not subject to tax. Companies and firms have to file their income tax return³ without fail and regardless of profits or losses incurred. Filing an income tax return³ is also necessary even if you have no tax to pay but need to claim your tax refund for taxes deducted at source.
So how do you file your Income Tax Return³. You need to first create your computation of Income Tax. You have to file your Income tax return³ online or by using Tax utilities. The correct form as applicable should be use for filing returns.
All details have to be filled out in all the requisite columns of the forms. Be sure that all the fields are filled out carefully. At the time of online filling, TDS section will get auto populated and you will have to verify that it is correct.
Thereafter in case of online filing of ITR - you should check all details and if there is any tax payable immediately pay the same and enter the details of tax paid. Your tax liability should show as nil. Upload the digital signature if needed. And as a last step e verify your return filed.
Tax Evasion is covered under Chapter XXII of the Income Tax Act, 1961 and is considered a criminal offence. While filing the return of tax it is important to abide by the intent as well as the letter of the law. There are several acts that are specifically mentioned in the Income tax Act that are considered offences and carry severe fines, penalties as well as prosecution.
These offences may arise on failure to fulfill basic requirements – such as not filing return of income in a timely and honest manner, failure to pay taxes on time, failure to pay tax deducted at source or tax collected at source on time, and such. Or maybe willful – such as a willful attempt to evade tax, failure to comply with notices, failure to produce books of accounts, false statements in return, falsification of books, abetment in filing wrongful return etc.
What is important to know is that all such acts carry a heavy fine and penalty with the possibility of prosecution.
So whether it be a simple error or deliberate falsification – the returns if scrutinized would likely to result to applicability of provisions as mentioned in Sections 275A to Section 280C of the Income Tax Act, 1961.
Penalties are payable under the Indian Income Tax Act, 1961 in certain cases. There is Penalty for late filing of income tax return³, penalty for late filing of TDS return, penalty for non-filing of return of income and also penalties payable for:
For tax calculations, the financial year begins on the 1st of April of a year and ends on the 31st of March of the next calendar year.
An individual, group of persons or an artificial body who has received an income during the previous financial year should pay income tax. The Income Tax Department classifies taxpayers in these categories:
HUF (Hindu Undivided Family)
Association of Person (AOP)
Body of Individuals (BOI)
Artificial Judicial Person
PAN stands for Permanent Account Number. This is a unique ten-digit code issued by the Income Tax Department for each taxpayer. The taxes paid, refunds received, or penalties are issued against the PAN.
The Department of Income Tax in India does not levy any tax on individuals and other eligible entities with an annual income below ₹2.5 lakhs. Above the minimum threshold, there is a different tax rate charged per annual income slabs.
Income under these five heads is taxed in India:
Income from house property
Gain or profits of profession or business
Income from other sources
Income Tax benefits would be available as per the prevailing income tax laws, subject to fulfilment of conditions stipulated therein. Income Tax laws are subject to change from time to time.
Edelweiss Tokio Life Insurance Ltd. does not assume responsibility on tax implications mentioned anywhere in this document. Please consult your own tax consultant to know the tax benefits available to you. While every attempt has been made to provide the latest data included in this document at the time of its release, Edelweiss Tokio Life Insurance Ltd. is not responsible for any form of damages (including, but not restricted to, errors and omissions) connected with this content.
3 - As per provisions of Income Tax Act, 1961. Tax benefits are subject to changes in tax laws.
5 - If declared, Cash Bonus is a non-guaranteed bonus which may be payable based on the performance of the participating fund of the Company.
Source of Information:
The Linked Insurance Products do not offer any liquidity during the first five years of the contract. The policyholder will not be able to surrender/withdraw the monies invested in Linked Insurance Products completely or partially till the end of the fifth year.
Unit Linked Life Insurance products are different from the traditional insurance products and are subject to the risk factors. The various funds offered under this contract are the names of the funds and do not in any way indicate the quality of these plans, their future prospects and returns. Please know the associated risks and the applicable charges from your Personal Financial Advisor or the Intermediary or policy document of the Insurer. The premium paid in unit linked life insurance policies are subject to investment risk associated with capital markets and the unit price of the units may go up or down based on the performance of investment fund and factors influencing the capital market and the policyholder is responsible for his/her decisions.
For more details on risk factors and terms and conditions, please read sales brochure carefully before concluding a sale.