The best time to start planning your tax-saving investments is at the beginning of the financial year so that you make an informed decision and your investments can compound and help you achieve long-term goals
New Delhi: Inflation and income tax often lower people’s savings and investments. With the cost of living going up, it is important that one saves money which can happen if you save on your income tax and increase your savings. The most popular tax-saving options available to individuals and HUFs are under Section 80C of the Income Tax Act.
Section 80C of the I-T Act includes various investments and expenses you can claim deductions on – up to the limit of Rs 1.5 lakh in a financial year. Apart from the 80C deductions, there are other options under Section 80 which help you save tax.
Here are 5 ways you can boost your savings and save on tax
1. Home loan: If you have bought a new house jointly with say your spouse and you are jointly repaying the home loan then both of you are eligible to claim an income tax deduction of up to Rs 2 lakh each. Additionally, a tax deduction of up to 1.5 lakh was introduced for interest on home loan taken during the period April 1, 2019, to March 31, 2020, for the purchase of a residential house with stamp duty price of up to 45 lakh. For self-occupied house property, after a deduction for 2 lakh is claimed, an additional deduction of up to Rs 1.5 lakh can now be claimed. However, an individual must not own any other residential property at the time of sanction of home loan in order to claim this deduction.
2. HRA and home loan deduction: If you have borrowed a home loan and are living in a rented house, you can claim an income tax deduction on home loan and House Rent Allowance (HRA) simultaneously. In order to claim both deductions simultaneously, the house financed with the home loan should be in another city and not the city where you are living on rent. If claimed together, you can save up to Rs 2 lakh on income tax.
3. HRA: If your employer does not give you HRA, you can still claim a deduction of up to Rs 5,000 per month under section Section 80CG of the Income Tax Act for the rent paid. However, it is to be noted that in order to claim this deduction, the employee, their spouse and minor child must own a house. This deduction can help you save on income tax and boost your savings.
4. Medical Insurance: If you have purchased a medical insurance policy for yourself or spouse, then you can claim a deduction of up to Rs 25,000. If you or spouse are above 60 years of age, you can claim up to Rs 50,000 deduction. If you have bought an insurance policy for your parents, you claim an income tax deduction of up to Rs 25,000 or 50,000 if your parents are above 60.
5. LTCG tax benefit: If you are planning to sell your house then try to hold on to it for two years before selling as the holding period will make it a long-term capital asset. Long-term capital gains are taxed at 20% plus indexation while short-term capital gains are taxed at slab rate, the highest being at 30% which means that if you hold on to your house before selling, you can save up to 10% tax
It is worth mentioning that the best time to start planning your tax-saving investments is at the beginning of the financial year as planning makes sure that you make informed decision and your investments can compound and help you achieve long-term goals.