While paying income tax is your federal duty, the Income Tax Act allows you to minimise your tax outgo. If you plan your taxes wisely, you can reduce your taxable income and, consequently, your tax liability. Here are some effective ways to save your taxes:
|1||Make use of Section 80C to the fullest|
|2||Buy a Health Insurance Policy (Under 80D)|
|3||Opt for a Home Loan (Under 80C)|
|4||Opt for the National Pension Scheme (NPS Under 80CCD – (1) & (2))|
|5||Invest in ELSS Mutual Funds (Under 80C)|
Section 80C of the Income Tax Act, 1961 is a very useful section for saving taxes. Under this section, you can claim a deduction for investing in certain instruments and for certain expenses incurred in a financial year. The maximum limit is Rs.1.5 lakhs, and the eligible deductions are as follows:
|Life Insurance Policy Premiums||Vary from plan to plan||2 years|
|Unit Linked Insurance Plan (ULIP)||Vary from plan to plan||5 years|
|Bank Fixed Deposits||6% – 7%||5 years|
|Public Provident Fund (PPF)||7% – 8%||15 years|
|Senior Citizen Saving Scheme (SCSS)||7.40 %||5 years|
|Sukanya Samriddhi Yojana (SSY)||7.60%||NA|
|National Savings Certificate||7% – 8%||5years|
|Tuition Fee Paid for up to 2 Dependent Children||Deductions||NA|
|Home Loan Principal Payment||Deductions||NA|
|Stamp Duty and Registration Charges Paid for the Property||Deductions||NA|
Note: Interest rate of FD may vary from bank to bank, for the best interest rate of Fixed Deposits you can prefer the FD plans on Finserv MARKETS.
A health insurance policy covers the expensive cost of medical treatments while also helping in saving taxes. Section 80D of the Income Tax Act makes health insurance premiums a tax-deductible expense. A premium of up to Rs.25,000 is allowed as a deduction if you are under 60 and for senior citizens, the limit is Rs.50,000. Moreover, if you pay the premium for your parents’ coverage, you can claim an additional deduction of Rs.25,000 or Rs.50,000, depending on their age.
A home loan not only enables you to buy your own home but has multiple tax benefits, like:
The limit of Rs.1.5 lakhs under Section 80C includes the deductions available under Sections 80CCC and 80CCD (1) for pension plan premiums and NPS investments, respectively. However, Section 80CCD (1B) allows an additional deduction of Rs.50,000 for NPS investments. So, with NPS, you can not only build up a retirement corpus, but also save on additional taxes.
If you are looking to invest in mutual funds for tapping into their return potential, choose the Equity Linked Saving Schemes (ELSS). ELSS funds invest predominantly in equity stocks and securities. They, thus, have a high risk-high return potential with a 3-year lock-in period. What sets ELSS apart from other mutual funds is its tax-saving feature. Investment in the ELSS funds is allowed as a deduction under Section 80C with a limit of Rs.1.5 lakhs. Moreover, the returns that you earn are tax-free up to Rs.1 lakh. If the returns are higher than Rs.1 lakh, a tax of 10% is charged on the excess returns.
By exploring the aforementioned avenues, you can plan your taxes efficiently and lower your tax liability considerably. Besides earning returns from investments, you can also save tax. That’s right, it’s a win-win combination!