Are you looking for ways to save on income tax before filing your returns? Though last-minute investments are a lousy way to start your new year, you can still secure yourself and make it before 31 March. Let’s look at how you can reduce your taxable income and create a foolproof design for effective income tax planning.
Things to Keep in Mind While Planning to save Income Tax
1. Public Provident Fund (PPF)
PPF is a government scheme with a lock-in period of 15-years, a maximum investment amount of INR 1,50,000 and a minimum amount of INR 500 per year. The money invested gets compounded over the years, giving you handsome returns on maturity. The scheme is popular as the amount received at maturity is fully exempt from taxes. You can get tax benefits under Section 80C where a maximum amount that can be claimed under this section is capped at INR 1,50,000 per financial year.
2. Donations
Donations made to a \ scientific institution, religious group or charitable organization can be claimed under Section 80G. The amount that can be claimed ranges from half to full exemption. It also covers donations made to governmental funds.
3. Life Insurance Policy
Buying a life insurance plan is the best way to save on income tax as it does not only give tax benefits but also secures your family with a life cover and allows wealth creation. Some insurance policies are term insurance, money back policy, endowment plan, whole life insurance, and many such. These policies enable you to fulfill your long-term savings plan where you receive a lump sum maturity benefit. You can claim tax deductions under Section 80C and Section 10(10D) of the Income Tax Act, 1961. The maximum amount that can be claimed under Section 80C is capped at INR 1,50,000 per financial year.
4. Home Loan
If you have taken a home loan, the payments made as EMIs towards repaying the loan can be claimed for income tax deduction. Under Section 80C, the EMIs for repaying the principal amount can be claimed for deductions which include charges of stamp duty and registration. Additional tax benefits can be claimed under Section 24 and Section 80EE.
5. Sukanya Samriddhi Yojana
Sukanya Samriddhi Yojana is a savings scheme for parents having a girl child making them eligible for tax benefits. The scheme aims to accumulate money for the expense of education and marriage of the girl child. The parent or legal guardian can claim the amount paid towards the scheme under Section 80C. The benefit is available for two girl children and is extended to a third child in the case of twins.
6. Health Insurance Plan
If you have bought a health insurance plan, you can claim the premiums paid towards securing the policy under Section 80D. This reduces your taxable income and enables you to get your health insured.
7. Equity-Linked Savings Scheme (ELSS)
ELSS or Equity-Linked Savings Scheme is a diversified equity mutual fund which has a lock-in period of 3 years. This mutual fund scheme gives you tax benefits along with long-term returns. The compounding benefit of this scheme gives lucrative returns making them a popular option for many. But as the investment is market-linked, the lock-in period reduces the impact of lows of the share market.
