Tax Season is Coming- Know How to Save Tax

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 fulfil those long-term wealth creation plans. So, let’s begin this New Year with some insightful ways of saving on taxes.

Key takeaways

Ways to save tax include:

• Insurance
• Investments
• Tax-savings fixed deposits
• Provident funds
• Loans
• Income tax return filing within duration
• Select the precise tax regime
• Hindu Undivided Family and extra income
• Amount received through inheritance

Best Ways to Save Tax

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

a. Insurance

There are several types of insurance that you can buy to secure yourself. But the tax-saving options in insurance are life insurance, Unit-Linked Insurance Plans (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 of a pure life cover plan or a policy which fulfils long-term savings goals. 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).

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 for 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 planning 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 will give you good returns in the future. You can get tax planning benefits and claim an exemption under Section 80C which has a maximum cap of ₹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 available 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 ₹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 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 a 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 ₹30,000 per financial year can be claimed for the interest paid on the loan.

6. Interest on Savings Account

Interest earned on savings accounts is typically tax-free up to ₹10,000. This amount represents the sum of all savings accounts. Under section 80TTB, this cap is raised to ₹50,000 for older folks.

7. Income Tax Return Filing Within Stipulated Duration

An individual or business must file their ITR annually by July 31 or a different deadline set by the income tax administration. A penalty will be assessed if your income tax return is not submitted by the due date. Prior to the deadline, the income tax return must be filed in order to qualify for a number of benefits, including house loans, immigration papers, higher value transactions, etc.

8.Select the Precise Tax Regime

Indian citizens are currently subject to two different taxes systems. When filing the return, you had two alternatives to select from. Having the appropriate tax regimes would be crucial for maximising tax savings. Although the new tax code allows for a reduced tax rate, tax deductions are not permitted.

As a result, while applying for tax deductions under Section 80C of the Income Tax Act, you should use the prior tax system. If not, changing your tax structure would allow you to pay less in income taxes. To compare the current and historical tax regimes, you could utilise an online income tax calculator.

9. Hindu Undivided Family (HUF) and extra income

Regardless of the HUF’s residency status, HUFs are recognised as separate tax entities and are entitled to separate tax exemptions for each member, as well as a basic tax exemption of ₹2.50 lakh.

10. Amount Received Through Inheritance

India has no inheritance tax; therefore, whatever money you inherit through a will or by virtue of being a legal heir is completely tax-free.

Conclusion

Many consumers make investments in tax-saving products at the conclusion of the fiscal year with the intention of reducing their tax burden. But the best time to make investments in tax-saving plans is at the start of the fiscal year.

Using a variety of tax-saving tactics, you can invest regularly to minimise your tax liability and grow your wealth. As a result, you should look into the finest investing techniques that reduce your tax liability and keep your investments to the appropriate categories of instruments.