February 1st, 2019 was an important day as the Government presented its latest budget before the Lok Sabha Elections to be held later in the year. The budget even delivered what was expected from it as it introduced tax reliefs for the low and middle-income individuals. One of the major highlights of the Interim Budget 2019 was the tax rebate proposed for individuals with a net taxable income up to INR 5 lakhs. This came to be the most appreciated move by the Government as Indians rejoiced at the proposed change which frees the middle-income earners from tax liability. Do you know what the change is and how it can impact your insurance business?
What is the proposed change?
The Union Budget 2019 has allowed taxpayers full tax rebate if their taxable income is up to INR 5 lakhs. This means that if you or your clients have a net taxable income up to INR 5 lakhs, you wouldn’t have to pay any tax.
Ways of avoiding tax liability?
Tax liability can be avoided if the net taxable income is either up to INR 5 lakhs or brought down to this level. Even if your clients have higher incomes, they can bring their taxable income within INR 5 lakhs using the below-mentioned ways –
- If they claim the maximum possible deduction of INR 1.5 lakhs under Section 80C through specified investments and spending
- If they buy health insurance and claim a deduction under Section 80D
- If they invest in National Pension Scheme and claim a deduction of up to INR 50,000
- If they claim a standard deduction of INR 50,000 if they are salaried
- If they claim other available tax deductions and exemptions on their taxable income
How does it boost your business?
The first two ways of reducing tax liability have a direct bearing on your insurance business. Here’s how –
- Life insurance premium under Section 80C
Section 80C of the Income Tax Act allows premiums paid for life insurance policies to be claimed as a deduction. Thus, to ensure that your clients utilize the deduction available under Section 80C fully, you can pitch life insurance policies suitable to your clients’ needs. The policies would not only fulfill your clients’ financial needs but also they would help them reduce their taxable liability by up to INR 1.5 lakhs.
Term insurance plans are universally relevant and can be sold to each client. Even if your clients have existing term plans, you can check if the coverage is sufficient and recommend an increase in the coverage if the existing coverage is not optimal. Besides term insurance plans, you can also sell child plans, unit linked plans or pension plans to your clients if such plans match their needs. For instance, if your client is looking for market-linked investments, unit-linked plans could be suggested. Similarly, for clients looking to create a retirement fund, pension plans fit the bill. So, educate your clients about utilizing Section 80C deductions through suitable life insurance plans and boost your life insurance sales.
- Health insurance premium under Section 80D
Health insurance is another important product which helps take care of your clients’ huge medical bills. Inform your clients about the tax-saving nature of health insurance plans along with the important coverage benefits. By buying health insurance plans for themselves and their families, your clients can reduce their taxable income by up to INR 25,000. This limit increases to INR 50,000 if your clients are senior citizens. Moreover, if they buy a separate health insurance policy for their dependent senior citizen parents, they can claim an additional deduction of up to INR 50,000 on the premiums paid and reduce their tax liability by an additional amount. So, by informing your clients about the tax saving benefit of Section 80D, you can boost your health insurance sales.
While earlier buying life and health insurance policies gave your clients a reduction in tax liability, with the new budget changes, they can eliminate your clients’ tax liability completely. All you need to do is explain the tax benefits provided by life and health insurance policies to your clients and how can these tax benefits reduce their tax liability to zero. Once they understand, they would readily invest in life and health insurance plans to get the coverage and also to nullify their tax liability and your business would increase in the process. A win-win situation for you as well as your clients, don’t you think?