There is always a joy that follows when our bank account is credited with income in the form of salary, rental earnings, or investment returns. However, this joy is short-lived as the income eating moths called ‘Taxes’ appear during the tax-filing season, only to eat away our income and replace our joy with a foreboding sense of financial liability.
While it may not be possible to avoid taxes altogether, there are a few smart ways to deal with them. Yes, planning and acting in time, can help you bring down your tax liability and help you save your hard-earned money.
So, if you’re still wondering how to save money, then here are some tax-saving tips that can help you set the right foot forward in the financial arena of your life-
- Identify Your Tax Saving Options
There are several tax-saving options that offer some respite from taxation. Different sections under the Income Tax Act, 1961 offer to reduce your tax liability by providing either exemptions or tax deductions. Some of these tax-saving options include:
This section offers deductions of up to Rs. 1.5 lakh from your taxable income, on investments. Tax deductions under Section 80C are available for individuals and HUFs (Hindu Undivided Family). To claim this deduction, you can invest in instruments that offer both capital appreciation and contingency planning.
Some of the tax benefit investment options you can explore are-
- ULIP(Unit Linked Insurance Plan)
- ELSS(Equity Linked Saving Scheme)
- PPF (Public Provident Fund)
- Bank Fixed Deposits
All these plans provide you with a good way to achieve the twin objective of wealth creation and tax saving, as they offer you good returns and tax benefits.
This section offers tax benefits on the premium paid towards the medical insurance policy. On buying a health insurance policy for yourself, spouse, and dependent children, you can claim a deduction of Rs.25,000.
Moreover, you can also claim an additional deduction of Rs. 25,000 on if you purchase an insurance policy for your parents, ageing less than 60 years. In case your parents age more than 60 years, you can avail a deduction of Rs. 50,000, to take your tax savings up to Rs. 75,000.
If you make contributions to a pension fund, then you can avail tax benefits under this section. The maximum deduction permitted under the section is 10% of your salary amount (for salaried employees) or 20% of total gross income (for self-employed individuals) or Rs. 1.5 lakh, whichever is less.
Along with these three main deductions, several other sections also offer other tax-saving benefits. 80CCC provides tax benefits on premium paid towards life insurance or annuity plan, 80GG on house rent paid when HRA is not offered, 80E on interest paid on education loan and several others.
So, you must identify all the sections under which you’re eligible to claim a deduction to maximise your tax savings.
- Start Tax Planning at the Onset of the Financial Year
To avail maximal tax benefits, it is extremely crucial that you invest the right amount of time in planning your finances. For this, you need to start with the planning exercise at the beginning of the financial year itself.
This will keep you in good stead in reaping the benefits early on, along with saving you last-minute stress of arranging for such deductions.
- Invest for Overall Wellness, Not Just for Tax Saving
Jumping into tax-saving without considering the full picture will not help you. Therefore, you need to conduct proper research, planning, and consideration before investing for the purpose of tax saving.
For instance, buying a medical cover for your family, will not only provide you with financial support during a health crisis but also enable you to avail tax deductions under Section 80D.
Health plans from reputable insurers such as Max Life Insurance also offer additional financial coverage against several life-threatening ailments including Alzheimer’s disease, cancer, angioplasty, and kidney failure.
Investments that provide comprehensive protection help ensure that you have reliable financial support when you need it the most.
Now you know about various tax benefit investments, and how to save money using such plans. So, seek and buy the right option to enjoy multiple benefits. Happy Tax Saving!