Taxpayers are often advised to start early with their tax planning. The key to tax saving is understanding the right investment strategies for an individual, and where one can claim deductions. Furthermore, it is also imperative for taxpayers to have a long-term, planned approach towards taxes, and invest in tax-saving instruments during the early periods of a financial year. This makes it easier for individuals to align their tax-saving instruments with their financial goals.
However, we often find ourselves with a limited amount of time for tax planning, which sometimes leads to trusting unscrupulous tax advisors or paying a higher amount in taxes. Here are some last minute tax planning hacks that will help you in making effective last-minute decisions.
A majority of taxpayers would be aware of Section 80C under the Income Tax Act, which enables individuals to significantly reduce their tax burden by providing deductions of up to Rs. 1,50,000 on specific investments and payments. Individuals can use the rebates available as a last minute tax-saving strategy by investing in one or more of the investment options. These include:
Equity Linked Savings Scheme (ELSS): The Equity Linked Savings Scheme (ELSS) is a diversified equity mutual fund scheme, whose investments qualify for tax deductions. In ELSS, minimum 80% of the corpus is invested in equity-based funds, and the returns depend on the performance of the equity markets. Section 80C of the Income Tax Act allows tax rebate of investments up to Rs. 1.5 lakhs in ELSS. ELSS is also an attractive option for wealth creation over a longer period of time.
Public Provident Fund (PPF): Public Provident Fund is a savings scheme that is guaranteed by the Central Government. It also provides a fixed rate of return, which is around 8%, and under Section 80C of the Income Tax Act, PPF investments are eligible for tax deductions. However, the maximum amount one can deposit in a PPF per year is Rs. 1.5 lakhs, and hence the entire amount deposited in a PPF account in a year can be claimed as deductions.
National Pension Scheme (NPS): Under Section 80CCD (1B), individuals who invest in NPS can claim deductions of up to Rs. 50,000, in addition to the Rs. 1.5 lakhs under Section 80C. NPS was started by the Indian Government to allow working professionals have pensions once they retire, and the returns are based on the performance of the equity market.
National Savings Certificate (NSC): The Indian Government currently also allows tax deductions to be claimed for investing in the National Savings Certificate scheme. While the interest earned is liable to tax, if reinvested, the amount will be eligible for deductions.
Under Section 80C, the premiums paid by a policyholder towards life insurance policies (self/spouse/children/HUF member) are eligible for tax deductions of up to 10% of the sum assured or Rs. 1.5 lakhs, whichever is lesser. Furthermore, Section 10(10D) offers tax deductions on claims such as death and maturity benefit, and this includes all the bonuses against those specific life insurance policies. You can avail the dual benefits of tax-saving as well as protection by opting for the Bajaj Allianz Smart Protect Goal term insurance plan on Bajaj Markets, which offers policyholders the benefits of a sum assured of Rs. 1 crore at nominal premiums of Rs. 13 a day. In addition to being affordable, the plan is also extremely flexible, offering policyholders everything from spousal cover to critical illness riders, giving them the chance to customize their plan.
Money spent on particular diseases or for treating handicapped dependents also enables you to save tax. Premiums paid towards medical insurance policies are eligible for tax deductions of Rs. 15,000 if insurance is for self/spouse/children, and Rs. 20,000 if the insurance is for parents.
Under Section 80C, principal repayment on house loans are also eligible for tax deduction. Similarly, under Section 24 and Section 80E, the interest amount paid on house loans and education loans are eligible for tax deductions. Furthermore, the tuition fee paid for your child’s education is also eligible for a tax deduction up to Rs. 1.5 lakhs p.a., and taxpayers can claim an income tax exemption by submitting receipts issued by the school for payments made during the course of the financial year.
Taxpayers are advised to start early with their tax planning and figuring out their tax saving investments for the financial year. However, at the eleventh hour, by making a comprehensive list of existing investments, and learning about deductibles on loans and insurance policies, individuals can save a substantial amount they pay as taxes.