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Tax Season Is Coming- Know How to Save Tax
  • 27th Jan 2020 |
  • 3,825

With the tax season around the corner, you should start gearing up by investing in tax-saving instruments. You can find several investment options to suit your requirements like budget and risk appetite and fulfill those long-term wealth creation plans. So, let’s begin this New Year with some insightful ways of saving on taxes.

Best Ways to Save Tax

You can invest in numerous financial instruments to save tax and reduce your taxable income. But not every taxpayer iscomfortable with all the kinds of investment options available. Hence, here are some financial tools to help you save taxes as well as choose an option that suits your requirements.

1. Insurance

There are several types of insurances that you can buy to secure yourself. But the tax-saving options in insurances are life insurance, Unit-Linked Insurance Plan (ULIPs), and Health Insurance.

a. Life Insurance

Life insurance is a plan which provides you with a life cover, for example term insurance, for a fixed period of time. In return, you have to pay the premiums for the insurance policy on a regular basis. You can avail a pure life cover plan or a policy which fulfills long-term savings goal. The premiums paid towards securing insurance can be claimed under Section 80C of the Income Tax Act, 1961. Also, the death benefit can be claimed under Section 10(10D).

Invest in Term Insurance now and Save Tax

b. ULIPs

Unit-Linked Insurance Plan is a type of policy that is a mix of investment with life insurance. In this plan, some amount of the premium is invested in shares or bonds and some are used for providing a life cover. You can choose the investment option from equity or debt as per your risk appetite. You can claim income tax deductions for the premium paid under Section 80C. The maturity amount received can be also claimed for tax exemption under Section 10(10D).

c. Health Insurance

Health insurance is a policy that provides coverage on medical expenses incurred on hospitalization, treatments and other such costs. The premiums paid help in getting health insurance to avoid hefty treatment expenses and to safeguard yourself from any unfortunate incidences. Tax benefits can be claimed under Section 80D of the Income Tax Act, 1961 for the premiums paid towards the plan.

2. Investments

a. Equity-Linked Mutual Funds (ELSS)

Equity-Linked Savings Scheme is a diversified mutual fund with a lock-in period of 3 years. Through this investment, you can experience the power of compounding which ends up
giving you good returns in the future. You can get tax benefits and claim an exemption under Section 80C which has a maximum cap of INR 1,50,000.

3. Tax-Savings Fixed Deposit

a. Post Office Time Deposit

A post office time deposit is similar to a fixed deposit with a tenure that varies from 1 to 5 years. The benefit of having a TD is that even a minor can invest in this option. Contributions made towards a five year TD can be claimed under Section 80C of the Income Tax Act, 1961.

b. National Saving Certificate (NSC)

National Saving Certificate is a governmental scheme that can be availed at a post office. This investment has a lock-in period of 5 years where you can invest a minimum amount for fixed returns after maturity. You can claim tax exemption under Section 80C with a cap of INR 1,50,000 per financial year.

4. Provident Funds

a. Public Provident Fund (PPF)

PPF is an investment tool initiated by the government and has a lock-in period of 15 years. It is a lucrative option for investors looking for low-risked alternatives. You can get a dual tax benefit as the money invested in the scheme can be claimed under Section 80C and the lump sum received after maturity is also deemed as tax-free.

b. Employee Provident Fund (EPF)

EPF is an investment option for employees working in an organization. A small part of your income gets contributed towards EPF and remains exempted from tax. You can claim it under Section 80C of the Income Tax Act, 1961.

5. Loans

a. Home Loans for Construction or Buying a House

You can claim tax exemption on the repayment of the principal amount on home loan under Section 80C. Also, the interest paid on the home loan can be claimed under Section 24.

b. Home Loan for Renovation

A home loan for renovating your house also gives you tax benefits under Section 24. A maximum amount of INR 30,000 per financial year can be claimed for the interest paid on the loan.

Save Tax Now

Some Tax-Free Incomes You Should Know About

1. Agricultural Income

Income earned from agriculture is considered a tax-free income under Section 10(1). But the regular filing of Income Tax Returns should be practiced even if the earnings from agriculture are exempt from tax.

2. Interest from Savings Account

A maximum deduction of INR 10,000 can be claimed under Section 80TTA on the interest earned. For claiming the deductions, you can show the interest earned from your savings account as income from other sources while filing ITR.

3. Hindu Undivided Family (HUF) Receipts

Any money received or inherited as a member of HUF is exempt from tax and can be claimed under Section 10(2). This amount can be a family income, impartible land or income from the family estate.

4. Student Scholarships

Any student scholarship received to minimize the cost of education can be claimed under Section 10(16) for tax exemption. This benefit does not have a limit to the amount that can be claimed as tax-free income.

5. Education Loan

If you have taken an education loan for yourself or your spouse or your children, you can claim tax deductions for the repayment of the interest. This tax benefit is allowed under
Section 80E and cannot be used for claiming the repayment of the principal amount.

6. Donation

Any voluntary donations made to a religious group, governmental funds or charitable organization can be claimed under Section 80G. The claim amount for tax deductions ranges from half to full exemption.

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