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Tax planning allows you to maximise your savings by reducing your tax burden. The Income Tax Act offers taxpayers certain deductions against savings, expenditures, and particular investments. While every law-abiding citizen must pay taxes, saving income tax is crucial for a financially safe future. There is several tax saving investment options available in India. Let’s explore some good options to help you save.
Life insurance policies like term life insurance plan, savings plans & others have become a popular tax-saving tool in India. These plans provide your loved ones with a payout if anything happens to you during the policy tenure. Apart from securing your family’s financial future, insurance plans also allow you to claim deductions up to INR 1, 50,000 per year against your premiums. In case of an individual, exemption is available for premium paid on policies for self, spouse and children. In case of HUF, exemption is available for premium paid on policies for any member thereof.
The Employee Provident Fund (EPF) helps working individuals build a corpus for their retired life. Under this retirement scheme, employers and employees invest a certain amount in the fund each year. The accumulated corpus and the accrued interest do not attract taxes, making it one of the most popular tax-saving investments. Your contributions towards your Employee Provident Fund (EPF), also qualify for the exemption up to INR 1, 50,000 per year under Section 80C.
Contributions made towards the Public Provident Fund (PPF) are eligible for tax deduction under Section 80C#. The maximum deposit limit for PPF is Rs. 1, 50,000 a year, which means you can claim the entire deposited amount as an exemption under the Income Tax Act.
ELSS investments are eligible for tax exemption under Section 80C#, up to the maximum limit of Rs. 1.5 lakh. These investments come with a mandatory lock-in period of 3 years.
Fixed deposits provide returns at a steady interest rate, offering guaranteed returns on your investment. They have a minimum lock-in period of five years, helping you save for medium-term financial goals. As with other investments under Section 80C, you can claim a maximum deduction of INR 1, 50,000 per year.
Unit-Linked Insurance Plans (ULIP) provides the dual benefits of life coverage and investment opportunities. Buying ULIP plans have become one of the most popular tax-saving investments in the recent past. These plans allow policyholders to decide how to invest their money while safeguarding their family’s financial future.
The National Savings Certificate (NSC) is a government saving scheme that you can open with the post office. It’s a tax-saving investment that helps working individuals save up for the future. The NSC is a low-risk investment option and provides guaranteed returns, making it a safe plan. The NSC offers tax benefits of up to INR 1, 50,000 per year, making it incredibly popular with individuals who have a low risk appetite.
If you’ve opted for a home loan, you can avail of a deduction of up to INR 1, 50,000 against your principal amount.
You can claim a deduction of INR 2 lakhs from your taxable income against the interest amount you pay on your home loan under Section 24# of the Income Tax Act.
Like life insurance, health insurance plans also provide financial stability during difficult times. These plans help you deal with medical emergencies and hospital bills after an accident. Apart from these benefits, health plans are also a good option for saving income tax. Premiums you pay for your own health insurance or your parents’ policies can get deducted from your taxable income. You can get a maximum deduction of INR 25,000 (for self, spouse, children) and INR 25,000 (for parents) against your health premiums under Section 80D# of the Income Tax Act. For senior citizens (above 60 years of age) these health plan benefits are capped at a higher amount of INR 50,000 (for self, spouse, children) and INR 50,000 (for parents).
Under Section 80E# of the Income Tax Act, you can avail of a deduction for interest paid on an education loan taken for higher education. The entire interest amount paid in a financial year can be availed of as a deduction and this can be availed for a maximum of 8 years.
You can claim a deduction of INR 50,000 from your taxable income against the interest amount you pay on your home loan. You are eligible to claim the deduction as long as you are purchasing a property for the first time and the value of the property is less than INR 50 lakhs. The deduction is only available when the loan amount is less than INR 35 lakhs and has been sanctioned by a financial institution or housing finance company. The loan must be sanctioned between 01.04.2016 to 31.03.2017.
Individuals who do not receive House Rent Allowance (HRA) and do not own a residential accommodation in the city where they are employed can claim a deduction against the rent paid for accommodation.
You can claim a maximum deduction of:
1. INR 5,000 per month or
2. the actual rent paid minus 10% of your total income or
3. 25% of your total income
The total income to be considered should be before allowing deduction for any expenditure under this section.
Only individuals and Hindu Undivided Families (HUFs) can claim the deduction under Section 80GG#.
You can claim a maximum tax deduction of INR 10,000 per year against the interest earned on savings accounts. The interest earned on fixed or recurring deposits does not qualify for the deduction. Individuals and HUFs are eligible to claim the deduction under Section 80TTA#.
Section 80TTB# is a provision whereby a taxpayer who is a resident senior citizen, aged 60 years and above, can claim maximum of Rs. 50,000 per year, as a deduction against the interest earned on deposits.
To avoid last-minute tax-planning hassles, you must start planning your tax-saving investments at the start of the financial year. Waiting till the end of the year, results in hasty and impulsive decisions that may not be right for you. Here are a few tips to help you plan your taxes for the financial year.
Now that you have more information on tax-saving options, you can start the new financial year by planning accordingly. Ensure you check all the options available and make an informed decision about the kind of tax-saving investments you want to include in your financial plan.
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ARN - INT/ED/10/23/5703
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This material has been prepared for information purposes only, should not be relied on for tax or accounting advice. It is requested to seek tax advice of your Chartered Accountant or personal tax advisor with respect to your personal tax liabilities under the Income-tax law.
#Tax benefits are subject to conditions under Sections 80C, 80D, 80EE, Section 24 and other provisions of the Income Tax Act, 1961.
#Tax Laws are subject to change from time to time.
#The customer is requested to seek tax advice from his Chartered Accountant or personal tax advisor with respect to his personal tax liabilities under the Income-tax law