Sabse Pehle Life Insurance Campaign : What You Should Know
Life is unpredictable and while there is no crystal ball in which we could see what the future holds for us, we......Read Article
Have you ever invested in real estate or held a property for two years before selling? If you sold it after two years, you must have heard the phrase long term capital gain tax from your accountant. If not, or if you haven't heard of this before, this article will tell you all you need to know about income on long term capital gains and its tax treatment.
To understand this concept, first let us simplify some important terms for you:
Q - What are Capital Assets & Capital Gains?
A. Capital Assets means any kind of property owned by individual whether or not connected with business or profession such as immovable property, jewellery, bonds, stocks, mutual funds, patents, trademarks etc. When we talk about businesses, anything that is not intended for sale in the usual course of business operation and is held for a long term is a capital asset. However, some assets are not classified as capital assets in India – for example, agricultural land in rural India, clothes and furniture held for personal use, certain types of bonds, and so on.
The tax levied on profit or gain earned on selling/transferring such capital assets is called capital gains tax.
Depending on the holding period of capital assets, capital gains tax can be Long term Capital Gains Tax (LTCG) or Short term Capital Gains Tax (STCG). Such holding period can vary for different categories of capital assets as below:
|Asset||Holding period of Capital Asset|
|Short Term||Long Term|
|Immovable Property e.g. House property 2 years or Less More than 2 years||2 years or Less||More than 2 years|
|Movable Property e.g. Gold/Jewellery||3 years or Less||More than 3 years|
|Listed Shares||1 year or Less||More than 1 year|
|Unlisted Shares||2 years or less||More than 2 years|
|Equity Oriented Mutual Funds||1 year or Less||More than 1 year|
|Debt Oriented Mutual Fundss||3 years or Less||More than 3 years|
Capital Assets can be grouped into many different categories. These categories receive a different treatment when taxes are calculated on the profits you earn from them. If you hold an asset for a long term duration, you will be charged what is known as long term capital gain tax on the gains you make from selling/transferring them. However, there are a number of deductions that are permissible when long term capital gain tax is calculated.
Now, let us suppose that you own Rs. 2 lacs worth of stocks. After holding them for 3 years, you sell them for Rs. 3 lacs. The profit you earned from their sale is what can be called capital gains. Same goes for other types of capital assets too. However, capital gains do not refer to the appreciation in prices of your assets. Capital gains are recorded only when you let go (sale/transfer) of your capital assets. Capital Gains are not applicable to an inherited property as there is no sale, only a transfer of ownership. However, if the person who inherited the asset decides to sell it, capital gains tax will be applicable.
How is long term capital gain tax calculated?
Long term capital gain tax rate varies depending on the type of asset. Essentially, when the capital assets are sold, the capital gains earned through its sale are subject to taxation. The tax rate is also affected by the income tax slab that the individual falls under. However, there is one nuance here: the calculation of capital gains is subject to a few deductions:
The amount obtained after making the appropriate deductions gives you capital gains.
What are the tax rates on long term capital gain?
The long term capital gain tax rates for the fiscal year 2019-2020 are as follows:
|Equity shares||10% on amount above Rs. 1 lac + surcharge and education cess|
Let us see how this works while calculating long term capital gain tax in an actual scenario. Suppose that an individual whose income for the fiscal year of 2019-20 was 2.5 lacs. They sell a house that they bought in financial year 2013-2014 for 12 lacs for 30 lacs in 2019-20. Now, the tax on capital gains for financial year 2019-20 would be calculated as follows:
Tax on capital gains = (Sale price - Cost price (indexed ))*20.8%
= (30 lacs - (12 lacs * (2.89/2.2))*0.208
= (30 lacs - 15.76 lacs) * 0.208
= 2.96 lacs
The CII is released every year – this is what is used to index the cost price and adjust it according to inflation. So this is how the taxes on capital gains are calculated. All you need to ensure, is that the rates are consistent with the asset category and the fiscal year that you are selling the assets at, and that the purchase price has been adjusted for inflation using the right index. Knowing what taxes your investment might be subject to is the key to financial smartness. And that is exactly why you should know how your long term capital assets will be subject to tax when you sell them. If your goal is to save taxes on your investment, you should consider the Invest 4G Plan from Canara HSBC Oriental Bank of Commerce Life Insurance. It is an investment and insurance oriented ULIP which can help you save upto Rs. 46,800 on taxes.
Unit Linked Insurance Plan
8 funds and 4 portfolio strategies to invest
Loyalty additions and wealth booster
Return of Mortality Charge is available on Maturity under all three cover Options
Flexibility of switching between the fund options to take benefits of market movements or change in risk preference
Yes, the tax benefits available under the plan are in accordance with the current Income Tax laws. At any point in time, the prevailing laws are subject to amendments. As a norm, term insurance plans are a great financial instrument for financial protection against unforeseen and unfortunate circumstances, but they are widely acknowledged as an efficient tax-saving investment. Under Section 80C of the Income Tax Act, 1961, you are able to claim deductions of up to Rs 1.5 lakhs in a year on the premiums paid towards your iSelect term plan. There are a few other provisions as well - the amount of premium that you can claim a deduction for, cannot exceed 10% of the sum assured. This stipulation is in place for all insurance policies issued after 1st April 2012. This means you will get tax benefits in the form of a deduction for Rs 1.5 lakh or the actual sum paid, whichever is more. Apart from that, the death benefit, including any bonuses received by the nominee or your beneficiary, is fully tax-exempt under Section 10 (10D) of the Income Tax Act. This sum assured is entirely tax-free in the hands of the receiver.
Thus, iSelect term plan, like any other life insurance policy, presents tax benefits on the premium paid each year and the death benefits received by your beneficiary.
Top-up options in term insurance plans usually serve the purpose of enhancing your life cover. If you find yourself thinking that the initial quantum of life insurance may not suffice to serve the purpose of financial protection of your loved ones, you may want to expand or enhance the life cover. If you are keen on hiking your insurance cover, then you can opt for the built-in options under the iSelect term plan. These options are namely the Accidental death and accidental disability covers. Under the accidental death benefit, your beneficiary stands to receive an additional lump sum amount equal to accidental benefit sum assured along with the original sum assured under the term plan. You can choose to have an accidental death benefit amount of up to Rs 3 crore. How it will be meted out to your beneficiary depends upon the payout option you choose at inception.
The other option is called the Accidental Permanent and Total Disability benefit. Here the sum assured for payout is capped at Rs 1 crore, meaning you can get a cover of up to a maximum amount of Rs 1 crore. It will include incidences of loss of sight, severance of limbs, loss of speech, loss of hearing - all of these medical conditions also need to be checked by a registered medical practitioner who can testify that these are permanent and total in nature.
Thus, you can choose either or both covers for an additional layer of financial protection to your term insurance.
The ‘My Spouse and I’ option of the iSelect term plan allows you to cover your spouse under the same term insurance plan. The age of the spouse at the time of entry should be between 18 years to 50 years. The death benefit for the spouse is fixed at Rs 25 lakhs.
The process of including your spouse for a sum assured fixed at Rs 25 lakhs can be done without any hassles. In the unfortunate event of death/ diagnosis of the terminal illness of the spouse during the policy term, the sum assured under Spouse Cover will be paid out as a lump sum. Your insurance cover will continue (with a reduced premium) with all benefits intact as planned. In the event of death/ diagnosis of terminal illness/ Accidental Total and Permanent Disability (if opted for) of the life assured, the entire sum assured (as applicable) will be paid out, as per the benefit payout option chosen by you and your cover will terminate thereafter. However, the Spouse Cover will continue with a reduced premium, for sum assured of Rs. 25 lakh.
You can convert your policy from "Only Me" to “My Spouse and I” option, anytime during the policy term, provided the policy is in force, by adding a spouse cover within one year from the date of your marriage, where the marriage takes place after the policy commencement date.
Since the policy has a clear provision to add a spouse to the policy, the process is well laid out and hassle-free. In the case of divorce, you have to show appropriate documentation in order to opt-out of the spouse cover option.
Usually, the medicals of a person help the insurer assess the premium rates for you on the basis of the risks on your health, lifestyle, occupation, etc. For example, premium rates applicable to non-tobacco users will be lower than those for tobacco users because of how likely the latter group is to develop health conditions. Thus, to buy or to revive the policy, all the premiums due in the past need to be paid by you along with applicable interest rate and you may also be asked to undergo medical tests if required by the Company’s underwriting policy, to prove continued insurability. A medical test before buying the iSelect term plan might be identified on a case-by-case basis, however, if during the term of the policy there is a diagnosis then medical tests and medical practitioners involved are very specific.
For example, take the case of a terminal illness diagnosis, that is, if the life assured (or insured spouse, as the case may be) is diagnosed as suffering from an advanced or rapidly progressing incurable disease like cancer. In such a situation, the opinion of two appropriate independent medical practitioners is to be counted. If they say that the life expectancy is no greater than six (6) months from the date of notification of the claim, then the claim is admitted. These medical practitioners are required to be specialists from the field of medicine under which the terminal illness is categorised. Additionally, they should also be registered with the Medical Council of any State or Medical Council of India or Council for Indian Medicine or for Homeopathy set up by the Government of India or a State Government.
Term plans by their very nature are pure life insurance product: in return for your regular premium payments, the term plans promise the financial protection for your loved ones on the occurrence of an unforeseen event. Thus, term insurance plans only offer death benefits to the beneficiaries if the life assured under the policy dies during the term of the plan. Term insurance plans are pure insurance products or a pure protection instrument with no element of savings or investment in them. This means that the entire premium amount paid by you is diverted towards servicing this protection function and not towards an investment. In plans that contain an investment part, maturity benefits are paid upon maturity but that is not the case with term plans.
iSelect is a term insurance plan, therefore no benefit is payable on the maturity.
As a pure insurance product, iSelect term plan offers stronger financial protection. The premium you pay goes towards the cost of insurance and administrative expenses. Therefore, you can rest assured that the entire cost is going to ensure the financial protection of your loved ones should something happen to you. While there is no upfront investment with returns, the returns in the form of death benefits coming to your family are greater.