Tweeting about tax payment in the country, the Central Board of Direct Taxes (CBDT) stated that while 5.78 crore tax returns were filed, only 1.46 crores paid income tax for the financial year 2018-19 since their incomes were higher. However, how many of the taxpayers planned their taxes in advance?
While the Income Tax Act stipulates that you are required to pay a tax on your income, it also provides various tax-saving options. If you use these options, you can not only reduce your tax liability, you can build up your financial fitness too.
Here are 5 tips how –
1. Maximise 80C savings
Section 80C is the holy grail of tax planning. It allows a deduction of up to Rs.1.5 lakhs from your taxable income. You can claim this deduction by investing in eligible avenues like life insurance, ELSS schemes, PPF, EPF, National Saving Certificate, Sukanya Samriddhi Yojana, SCSS, etc.
You can also enhance your insurance coverage and avail 80C benefit. You can opt for a term insurance coverage or a traditional endowment plan for the same.
Moreover, expenses incurred on tuition fee of children, home loan repayments, property registration and stamp duty are also allowed as a deduction. So, make sure you claim all the eligible expenses and investments allowed under the section and claim a deduction of Rs.1.5 lakhs from your taxable income.
Additional Read – 5 Ways to Minimize your Taxes and Maximize Investments
2. Invest in a health insurance plan
A health insurance plan has become a must in today’s age when medical costs are soaring. As per a Max Bupa survey, while only 10% of the participants believed in the need of health insurance pre-COVID, the number jumped to 71% post-COVID. A health insurance plan takes care of your medical costs and can also help you save taxes. The premium paid for the policy is allowed as a deduction from your taxable income under Section 80D.
- You can claim a deduction of up to Rs.25,000 if you are below 60 or Rs.50,000 if you are 60 and above.
- Moreover, if you invest in a plan for your parents, you can claim an additional deduction of Rs.25,000 if your parents are aged below 60 or Rs.50,000 if they are senior citizens.
So, with a health plan, you can claim a deduction of up to Rs.1 lakh and save up to Rs.30,000 in taxes (if you fall in the 30% bracket).
3. Buy your own home
As per a Home Credit survey, 67% of Indians are open to a home loan. The loan not only helps you finance your dream home, but it also gives the following tax benefits –
- The principal repayment of the loan can be claimed as a deduction under Section 80C up to Rs.1.5 lakhs
- The interest paid is allowed as an exemption under Section 24(b) up to Rs.2 lakhs
- If you invest in an affordable housing scheme where the stamp duty value of the house is up to Rs.45 lakhs, an additional deduction of up to Rs.1.5 lakhs, is available under Section 80EEA
To create an asset and save tax in the process too.
4. Plan for your retirement
Lastly, retirement planning can also be tax saving. If you invest in the NPS scheme, you can avail of an additional deduction of Rs.50,000 under Section 80CCD (1B). Thus, the NPS scheme can help you amass a retirement corpus for a financially comfortable retirement and also give tax benefits in the process.
Additional Read – Everything you need to know about Value Investing
5. Use Section 87A to nullify your tax liability
As per CBDT’s reports, out of the 5.78 crore tax returns filed for 2018-19, 3.29 crore returns were those wherein the taxable income was up to Rs.5 lakhs. These taxpayers made use of Section 87A and nullified their tax liability.
Section 87A is a magic wand. It allows a rebate on the tax liability if your taxable income is up to Rs.5 lakhs. The rebate is the actual tax payable of Rs.12,500, whichever is lower. Even if your tax liability is higher than Rs.5 lakhs, you can reduce it to Rs.5 lakhs by claiming the tax benefits under Section 80C, 80D, 80CCD (1b) and other relevant sections. Thereafter, use the rebate available under Section 87A and pay zero tax. It is as simple as that!
Tax saving is not rocket science. You just need to plan it well with wise investments and financial choices. Experts at Tata Capital Wealth can assist you with professional guidance and help you to invest in tax-saving avenues that also improve your financial fitness through effective tax planning.