LIC’s Bima Bhachat – Good tax saving and investment Insurance plan
I have come across a good tax saving product from LIC, Bima Bachat, even though the insurance coverage is not very high. It is available in 9/12/15 years terms. Minimum entry age is 15 years completed and maximum is 65 years next birth day (and maximum age on maturity should be 75 next birth day. ie. 65 year old can join only for the 9 year scheme.).
This product Bima Bachat -Table 175- gives 15 % of Sum Assured (S.A.) once in every three years as survival benefit. On maturity, initial amount invested plus Loyalty Addition (L.A.) is returned. This translates to 22.37 % returns in every three years ( 15000/67058 * 100) or 7.5 % every year (tax free). This compares well with even bank fixed deposits which are taxable.. Reinvesting the above mentioned money received in the same scheme for another 12/9 year period or bank deposits will boost the returns by another two to three percentage making a total of minimum 9.5 % per year. This makes the scheme one of the best investment product with best tax saving option.
The above mentioned 15 % of sum assured payment once in three years and maturity amount is guaranteed and written on policy document and on lic’s official web site. Final year Loyalty addition is guaranteed in policy document (but amount is not written. It will vary from year to year and the given amount of 8000 by me below is only for illustration.)
To illustrate, a 35 year old pays Rs. 67058 (68271 for a 45 year old; returns remains the same for any age. only premium changes for age) for one lack Sum Assured for 15 years. He or She gets 15000/- every three years (15 % of sum assured). On maturity, Loyalty Addition of Rs 8000 is received (Assuming 80 Rs per thousand of sum asured for 15 year policy(normally LIC give 70-95 rupees per 1000 rupees of sum assured for plans of 15 year term) and Initial Amount invested (Rs 67058) is returned.
Assuming one is in the 10 % tax bracket (2 lack plus to upto 5 lacks annual income), at the time of investment, one saves Rs 8717 as 10 % of premium amount as tax (6705 + Edcuation Cess @2% plus Additional Education Cess @1% =2012). On 3rd/6th/9th/12th year one’s saving comes to Rs 15450 as tax (15000 + 3 surcharge on tax). Finally the maturity amount (ie the amount paid initially) Rs 67058 is tax free. Also the Loyalty addition of Rs 8000 is tax free.
If one is in the 20 % tax bracket ( 5 lack plus to upto 10 lacks annual income ), 20 % tax plus 3 % surcharge on tax is saved.
If one is in the highest 30 % tax bracket ( 10 lack plus annual income), 30 tax plus 3 % surcharge on tax is saved.
Income Tax Benefit : For Single Premium policies, 10 % of premium paid (for policies issued from April 1, 2012 onwards OR 20 % of premium paid for policies issued in between 1st day of April, 2003 and April 1, 2012 ) is exempted from tax under Section 80 C and payments received in every three years and on maturity are exempted from tax under Section 10 (10D). Please consult your tax adviser for latest and correct information. The writer is not liable for any action the reader takes, based on the information provided above.
In case of death of the policyholder, the 15 % already paid once in every 3 three years, will not be deducted from the Sum assured amount payable.
Note : Please consult your financial adviser before investing in any financial product(s). The opinion given above is purely my personal view and should not be considered as an expert advise.
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