Learn How to Calculate Income Tax: Guide for Insurance Holders

How many times have you had that sinking sensation when tax time is around the corner? Well, you can save up if you have insurance. Let’s be honest. Untangling the secret between how your insurance premiums affect your tax liability is like trying to unravel the ancient secret. But guess what? The good news is there are untold amounts of savings out there if you can figure out how to break this code.

Understanding how to calculate income tax is very important, especially for taxpayers. If you do, you can save income and claim deductions. Then, you can also easily calculate your tax liability.

Let’s discuss its procedure and learn about the tax liability calculation process.

How to Calculate Income Tax: The Foundation for Savings

Have you ever encountered the term “taxable income” on your tax return and wondered what it means? This seemingly simple phrase holds the key to calculating your tax liability. In essence, taxable income is the total amount of your earnings that the government uses to determine your tax obligation.

Think of it like this: imagine all your income sources for a financial year – salary, interest earned, rental income (if applicable) – as a big basket. Taxable income is what remains in that basket after you deduct certain allowable expenses permitted by the Income Tax Act. These deductions are similar to legitimate business expenses a company might claim.

By understanding how to calculate income tax, you can unlock the potential tax benefits associated with your insurance premiums. Let’s delve deeper into the world of deductions in the next section and see how they impact your tax bill.

Tax Benefits for Insurance Holders: Your Financial Superpower

The Indian government grasps the value of financial security and encourages people to invest in insurance. They offer tax deductions on the income tax for the premiums paid towards the qualifying policies.

Here’s how to calculate income tax and leverage these tax benefits:

  • Unlocking Savings with Section 80C

One of the sections under which insurance holders make maximum savings is section 80C of the Income Tax Act. This part helps you to subtract your payments towards various investment sources, like a few insurances and financial instruments. There’s a limit, though! The present Section 80C, which allows an individual to claim ₹1.5 lakh as a deduction every financial year, will be reconsidered.

Premiums for the life insurance plans (ULIPs excluded) that you, your spouse, and your dependent children have taken are contributed towards the medical insurance and are, therefore, tax-exempt.

  • Boosting Your Health Savings with Section 80D

Section 80D is also beneficial to health insurance holders. According to this section of the Income Tax Act, you are eligible to declare deductions on the amount you paid towards health insurance policies of your choice. This is similar to Section 80C, where there are also limits to the amount that can be deducted.

Navigating Deductions: Income Tax Calculator Old vs New

Choosing between the income tax calculator old vs new regime in India can impact the deductions you can claim. Let’s explore the key differences:

Old Tax Regime

This regime offers a wider range of deductions under various sections of the Income Tax Act, including:

1. Section 80C

Deductions for investments like life insurance premiums (excluding ULIPs), PPF contributions, tuition fees, etc. (Current limit: ₹1.5 lakh)

2. Section 80D

Deductions for health insurance premiums for self, spouse, dependents, and parents (up to a certain age). (Current limit: ₹25,000 – ₹50,000)

3. House Rent Allowance (HRA)

Salaried individuals can claim deductions for rent paid.

4. Other Deductions

Additional deductions may be available for medical expenses, loan interest payments, and donations.

New Tax Regime

This regime boasts lower tax rates but offers fewer deductions. However, some key deductions still apply:

1. Section 80C

Similar to the old regime, deductions are available for investments and specific expenses. (Current limit: ₹1.5 lakh)

2. Standard Deduction

The new regime introduces a standard deduction that simplifies calculations and replaces certain deductions like HRA. (Current limit: ₹50,000)

3. Section 80D

Deductions for health insurance premiums remain applicable. (Current limit: ₹25,000 – ₹50,000)

Tax Time Made Easy: Take Control of Your Finances!

Knowing how to calculate income tax returns helps you make good financial decisions. Tax reliefs under Sections 80C and 80D can help you reduce your tax liabilities and achieve your savings target.

Are you ready to streamline the tax calculation process? Explore Canara HSBC Life Insurance’s tax calculator, which is very customer-centric and can be easily accessed on its official website.