How to maximise your tax savings?
As tax season approaches, the first question on everyone’s mind is how to save tax. One of the easiest ways to save tax in India is claiming deductions on your income. By following these income tax saving tips, you can end up saving a significant amount of tax. Here are some ways to save tax in India.
How to save Income Tax in India using deductions:
Deductions are a reduction from your taxable income. There are several provisions of the Income Tax Act which help you reduce taxable income.
- Section 80C:
This is by far the most popular section. It covers a wide range of investments and expenses that provide you ways to save tax. The deduction is limited to Rs. 1,50,000. Some of the investments you can make to save tax in India under Section 80C are:
- Public Provident Fund (PPF)
- Employee Provident Fund (EPF)
- Tax saving fixed deposit (FD)
- Equity Linked Saving Scheme (ELSS)
- National Savings Certificate (NSC)
- Senior Citizen Savings Scheme (SCSS)
- Principal repayment on home loan*
- Tuition fees for children
- Stamp duty and registration fees on the purchase of a house
- Sukanya Samriddhi Yojna (SSY)
- Section 80CCC:
Investment in an annuity plan by Life Insurance Corporation (LIC) or any other insurer gets a deduction under this section. Together with Section 80C, you can claim a total deduction of Rs. 1,50,000.
- Section 80CCD
Investment in the National Pension Scheme gets a deduction of Rs. 50,000
- Section 80D:
The premiums you pay towards health insurance for yourself, spouse and dependent children are tax deductible. If you are under 60, you can claim a maximum deduction of Rs 25,000. If you are a senior citizen, you can claim a deduction of up to Rs 50,000. You can also claim an additional deduction for premiums you are paying towards your parents’ health insurance. If your parents are under 60, you can claim an additional deduction of Rs 25,000. If they are above 60, you can claim Rs 50,000 as a deduction.
- Section 80DD/Section 80U:
These sections give a deduction for disability either to the person (80U) or for a person dependent on the taxpayer.
- Section 80DDB:
If any money has been spent on treating specified disabilities, you can get a deduction between Rs. 40,000 to Rs.1,00,000 depending on the age of the person getting treated.
- Section 80E:
Tax rebate on education loans are only valid up to eight years starting from the year you begin repaying the loan. If your loan tenure exceeds eight years, then you cannot claim a deduction for interest paid beyond the eight years. Note that if you repay the loan before the eight-year tenure, then tax deduction will be allowed for that period only.
- Section 80G:
Amounts paid to charitable institutions etc. as donations get a deduction up to a certain limit depending on the charity you donate to.
- Section 80GG:
- House rent allowance is part of your salary, and you can claim a deduction for HRA. However, if you pay rent, but do not receive HRA from your employer, you can claim deduction under Section 80GG towards the rent you pay.
- Section 80GGA:
- Amounts paid for scientific research and development get a deduction of the amount paid.
- Section 80TTA:
Interest on savings bank or post office account gets a deduction up to Rs. 10,000.
This deduction is allowed on interest earned –
- From a savings account with a bank, co-operative bank or post office
- Section 80TTB:
Interest on savings and fixed deposit accounts held by senior citizens in a bank, co-operative bank or post office gets a deduction of Rs. 50,000.
How to save tax in India using exemptions:
Another way to be tax efficient is to ensure you earn tax-exempt income
- Dividend income from equities and mutual fund together is exempt up to Rs. 1 lakh (This is the aggregate amount of exemption for both equity and MF)
- Interest on Public Provident Fund/Employee Provident Fund and withdrawals
- Amounts received on life insurance policies (Link to last week’s Tax Thursday https://www.indianivesh.in/kb-blog/know-life-and-health-insurance-tax-benefits)
- Allowances for salaried employees
By ensuring you make the right investments and are aware of the Income Tax rules, you can significantly save on your tax expenses.
Note: *Annual interest component of up to Rs. 2 lakh (Rs. 3 lakh for senior citizens) can be claimed as a deduction against income under Section 24 of the Income Tax Act
How Insurance can help you save on Income Tax We make several different investments to ensure we are well-provided for in the future. Whether it is your retirement plan, your child’s education plan, or your wedding expenses, your investments are geared towards providing a safe future. A very important investment to make is insurance. Both life and health insurance are essential to protect not only your family but also your investments and income. Life insurance provides a shield to your family in case of any unfortunate scenario, whereas health insurance protects your investments and savings by compensating in case of a medical emergency. Insurance is a smart investment, not only because it provides safety to the family, but also because it provides tax benefits. Let us understand the tax benefits from insurance in detail. What are Income Tax benefits? To reward certain types of investments, the Income Tax Act gives a deduction. A deduction means a sum that can be reduced from your total income. Income Tax is calculated on the net income after considering all different types of deductions. For example, if your total income including interest income and salaried income is Rs. 5,50,000 and you have total deductions of Rs. 2,00,000 under different sections, Income tax will be calculated on Rs. 3,50,000. To put this in a formula, Taxable Income = Total Income – Total Deductions What deductions are available on Insurance? These deductions can be classified into two types: life insurance and health insurance. Life Insurance: The premium paid for any life insurance policy gets a deduction under Section 80C of the Income Tax Act. This deduction is available up to Rs. 1.5 lakh. However, this deduction is available only if the total premium paid does not exceed 10 percent of the sum assured as mentioned in the insurance policy. The deduction under Section 80C is available for all types of insurance: • Term insurance • Unit Linked Insurance Plan (ULIP) • Endowment policies Another deduction available is for a premium paid to any insurance company for a pension plan. This plan gives a monthly pension after the policyholder reaches a certain age. This deduction is given under Section 80CCC of the Income Tax Act. It is restricted to Rs. 1.5 lakh. However, the total benefit under Section 80C and 80CCC is restricted to Rs. 1.5 lakh. Health Insurance: Any amount paid as premium to an insurance company for a health insurance policy gets a deduction under Section 80D of the Income Tax Act. This deduction depends on the person for whom insurance premium is paid. It can be simplified in the form of a table. Premium Paid For Maximum Deduction Allowed Self, spouse, dependent children Rs. 25,000 Parents Rs. 25,000 Self, spouse, dependent children where self and spouse are senior citizens Rs. 50,000 Senior citizen parents Rs. 50,000 Will I have to pay Income Tax on benefits received from the Insurance company? Any amount received on a life insurance policy is exempt from Income Tax. This is provided the premium amount is not more than 10 percent of the sum assured. Any amount received on raising a health insurance claim with the insurance company is treated as a reimbursement of medical expenses and hence is not charged to tax. Disclaimer: IndiaNivesh Insurance Brokers Private Limited: Registered with Insurance Regulatory & Development Authority License No. 144 – Direct Insurance Brokers (Life & General) valid up to 6th April 2021 CIN :- U67200MH2003PTC138850 Reg Office A-302 Peninsula Bussiness Park, Senapati Bapat Marg, Lower Parel- 400013. Disclaimer: We are only distributors of Mutual Funds, IPO, Corporate Deposits & Fixed Income Products & PMS is not offered for commodity segment. "Investment in securities market are subject to market risks, read all the related documents carefully before investing
Why it needs to start early?Introduction ‘A stitch in time saves nine’ goes a famous saying which stresses on the importance of time. The same holds true for financial planning. Do you know why?Given its importance, a financial plan is essential for every individual. It helps you in meeting your financial goals in a systematic manner and gives you financial independence. Besides being important, it is advised that financial planning should be started as early as possible. Having a financial plan early in your life is beneficial because of the umpteen benefits you can get from it. If you are wondering what the benefits are, here are some for your knowledge – • It inculcates a sense of discipline in you When you start earning, you find various avenues to spend your limited income on. This leads to overspending which eats away your income. You are, thereafter, left with no money to create savings which is bad. When you have a clear cut financial plan early in life you become aware of your future liabilities and goals. You also know the funds required to meet those goals. Having financial goals instils a sense of financial discipline in you. You start saving early to reach the desired corpus and develop a saving habit which lasts your lifetime.• You can save affordable amounts regularlyWhen you plan your finances early, you start saving early. When you start saving early you have time on your hands. This time lets you create a substantial corpus by saving little affordable amounts every month. Your investments earn compound interest which, over time, multiplies your savings manifold. If you don’t believe me, see for yourself how the power of compounding works wonders –The following details are assumed for calculation purposes – Just by delaying your investments for 10 years, your corpus becomes one-third! Surprising, isn’t it? If you want the same corpus when you start late, your monthly saving should be more than Rs.14, 000 which is more than double of what you are required to save when you start early. Thus, by having a financial plan early in life you don’t have to stress your earnings and you can create sufficient funds for future.• You can save more and avoid debtsWhen you start saving early you get longer investment tenure. As demonstrated above, this longer tenure, coupled with compound interest yields very high returns. Thus, you can create sufficient savings for your life’s goals. When you have good savings you don’t have to take loans or debts to meet your financial liabilities. You can utilize your investments and avoid paying interest payments on loans.• You can learn from your mistakesMaking mistakes is common. You might make mistakes when you are new to the financial sector. You are learning the ropes and you create a financial plan which, according to you, gives you financial security. However, if your financial plan falls apart, you have a time advantage. You can take rectifying measures and rebuild your financial portfolio. Since you have time on your side, rebuilding another financial plan would not put a dent on your financial goals. You can learn valuable financial lessons from your mistakes and plan your finances for the future more carefully. Thus, early financial planning lets you rebuild your financial portfolio and your mistakes don’t prove financially hazardous.Conclusion A financial plan is necessary to handle your finances better. Ideally, you should resort to financial planning when you start earning. However, even if you have been delayed in formulating a financial plan, don’t wait any longer. Start at the earliest and reap the benefits of having a good financial plan to back your goals.DislcaimerInvestment in securities market / Mutual Funds are subject to market risks, read all the related documents carefully before investing.
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