As earning individuals of India we pay taxes based on our income and expenditures. The taxes applied for our expenses are ‘indirect taxes’, and the taxes applicable to our income are the ‘direct taxes’ which is also known as Income Tax.
For the year 2020, the Income Tax filing deadline is 30th November. But, along with filing the returns of last year, it’s also important to start tax planning for the current financial year.
This is suggested because if you plan properly, you will be able to save a substantial amount of money. Many of us still think that taxes are difficult to avoid, and hence they don’t plan for it or don’t bother to save on it. However, several investments can help you to wipe it out or reduce it.
So, let’s know those investments/strategies which can reduce your income tax burden.
Planning Income Tax
Paying taxes on hard-earned income is quite stressful at the end of each financial year. However, submitting insurance forms and rent receipts can reduce your tax burden to some extent. But if you plan for tax saving properly you can save even more and most importantly this will help you to reduce your unnecessary financial stress.
Here are some investments which can save you on your taxes:
1. The investment made under Section 80C
This is one of the most popular tax-saving options available in India. This allows you to save your hard-earned money on Income-tax under Section 80C of the Income Tax Act. Under this section, you can claim deductions up to the limit of Rs. 1.5 lakh for the investments made during one financial year.
Investments eligible to claim tax deduct under section 80 C:
- Tax-Saver FDs: Lock-in period of tax-saving FDs is 5 years. They carry a fixed rate of interest currently between 6-8%. The interest earned on these FDs is taxable.
- Public Provident Fund (PPF): Lock-in period of PPF is 15 years. The interest offered by them ranges from 7 to 8%. However, the interest earned on PPF accounts is tax-free.
- National Saving Certificate (NSC): It has a tenure of 5 years and a fixed rate of interest. The rate is currently 7%. The interest earned from NSC can also be counted under 80C if no other investments are using up the limit.
- Life Insurance Policy: Premiums paid for different types of insurance policies including life insurance, term insurance, ulips ect. are also tax-deductible section 80C of the income tax act.
- ELSS Funds – ELSS funds are the mutual fund investments that have a minimum of 80% of their assets in equity. The lock-in period for this is 3 years and the interest earned on these ranges from 15 -18%.
2. National Pension System (NPS)
This deduction is available under Section 80CCD up to Rs 1.5 lakh for contributions made towards your NPS account. However, the lock-in period for the NPS account is until your retirement.
3. Health Insurance Policy
With the spread of coronavirus and medical costs in India, availing health insurance is becoming a necessity. The health insurance policies not only reduce your cost of treatment when you get sick or when you get through a serious disease but it also saves you from the financial stress which comes as unwanted guests along with your health problems.
The other aspect which makes this health insurance even more helpful is the Tax benefits associated with it.
So, if you hold a health insurance policy then you can claim tax deductions of ₹25,000 on the portion of their annual taxable income spent towards the premium paid under section 80D. However, a different amount is exempted in different cases depending upon the age of the insured, the number of premiums paid and total taxable income respectively.
4. Deduction on your rent
You can claim a tax deduction on your House Rent Allowance (HRA). However, there is a set of rules that cap the maximum HRA deduction. In case your employer does not provide you HRA and you stay in a rented place, then you can claim a deduction up to ₹ 60,000 under Section 80GG.
5. Get a deduction for the interest paid on your home loan
If you are serving a home loan, the interest payable on it is tax-deductible up to ₹ 2, 00,000 under Section 24 of the Income Tax Act.
In case the property from which you have availed home loan is rented then there is no upper limit. However, the total loss can be claimed in the head of income from house property which is decided up to ₹ 2, 00,000.
6. Under Section 80EE
Section 80EE of the Income Tax Act allows you to avail of a tax deduction on the interest paid towards your home loan for the first-time homebuyer. So, if you are a first time home buyer, then you can claim a tax deduction up to ₹50,000 under section 80EE. To make this clear for you -This deduction is over and above the deductions provided under section 80C and Section 24 of the Income Tax Act.
7. Keeping Money in a savings account
Interest earned from your savings accounts is tax-free up to ₹ 10,000 under Section 80TTA of the Income Tax act. This limit is extended for the senior citizens and is ₹ 50,000. So, you can also keep money in your savings account and save on your taxes. But make sure you have done the calculation before you let your money be in your savings account.
Investing your money in the above-mentioned schemes can reduce your total taxable income every financial year, but make sure you submit the income tax return form and Form 16 provided by your employer to avail the tax -exemption benefits.