As the new financial year begins, individuals don’t bother to think about their income tax liability and leave the planning for the last minute. However, one should begin their tax planning from Day 1 in case he/she wants to achieve maximum benefits.
Please note that tax planning can be done at any point in time within a financial year. However, it is always better to get your tax plan for the year prepared in advance for better cash flow management, more investment income and low TDS liability. Tax planning should be an important part of your yearly financial planning. The sooner you start with it, the more cost-effective it will be for you. Delaying your tax plan will only enhance the burden towards year-end.
With the right information, you can easily make investments that pay off. The first thing you need to ensure is that you have a portfolio that is tailored to cater to your taxability and you need to have a basic understanding of the various income tax slabs. If you are in the middle of the tax-pool, in the 20% bucket, chances are it may be easy for you to save taxes with some simple steps. However, it becomes very challenging if you belong to the higher tax bracket of 30%.
The vast majority of us only see tax planning as a cycle that assists them with lessening their tax liabilities. However, it is also about putting resources into the perfect protections at the perfect chance to accomplish your monetary objectives.
Your investment plan depends on your lifestyle i-e whether you are a single person keen on experiencing the different things in life, or a happily married couple planning for kids, there are some simple investment switches that you can make to ensure that your life-goals are never out of reach. This is especially true since the various aspects of saving taxes are far too diverse. From your home loan EMIs to your children’s tuition fee, there are tax exemptions for a variety of different things that you can benefit from. If you are new to this and wondering where you can invest to get tax deductions, this should give you a good start:
Expand your investments and plan your retirement
Section 80C: This section of Income Tax Act lets you invest up to Rs 1.5 lakh per year. That leaves you with monthly investments of Rs 12,500. You might think that you can allot the entire amount to instruments like Public Provident Fund (PPF) at one go even at the eleventh hour. But you might just run out of funds. Hence, it is wiser to allot a nominal amount of Rs 12,500 on a monthly basis right from the beginning.
Before proceeding with investments, purchasing term life insurance could be useful if you are not insured yet. Here, you pay a low premium and get high coverage. The premium remains tax-exempt under Section 80C. however, if you are already adequately insured, think about investments mentioned below that will build a corpus for future goals while saving on income tax.
Some of the popular specified tax-saving products are Equity Linked Savings Scheme (ELSS), Public Provident Fund (PPF), Employees’ Provident Fund, Sukanya Samriddhi Yojana (SSY), National Saving Certificate (NSC), 5 year bank fixed deposits and so on. The choice of investment should depend on the risk appetite of the individual. While investment in ELSS may offer goods returns, there is also a possibility that you can suffer a loss. On the other hand, investment in PPF or NSC can offer you a comparatively less but stable income.
Section 80CCD(1b): One can claim additional deduction of Rs 50,000 by investing it in NPS. This will make the total tax-saving of Rs 2 lakh in a financial year if saving under sections 80C and 80CCD(1b) is combined.
Section 80CCD(2): Over and above this Rs 2 lakh ceiling you can also claim deduction on the employer’s contribution made to NPS account. You can claim maximum deduction of 10 per cent of your basic salary plus dearness allowance. There is no monetary restriction on this deduction.
Investing in NPS can be a good scheme for anyone who wants to plan for their retirement early on and has a low-risk appetite. A regular pension (income) in your retirement years will no doubt be a boon, especially for those individuals who retire from private-sector jobs. It is important to note that NPS amount can be withdrawn after the subscriber has attained 60 years of age (however, partial withdrawal allowed subject to fulfilment of certain conditions).
A systematic investment like this can make a massive difference to your life post-retirement. In fact, Salaried people who want to make the most of the 80C deductions can also consider this scheme.
A comparative table of the popular investment schemes that are eligible for deductions is mentioned below:
|Investment||Interest||Lock-in period||Risk Profile|
|NPS||8% to 10% (expected)||Till retirement||Market-related risks|
|ELSS||12% to 15% (expected)||3 years||Market-related risks|
|PPF||7.1% (guaranteed)||15 years||Risk-free|
|FD||5% to 8% (guaranteed)||5 years||Risk-free|
Put some cash in Savings accounts.
Some amount in bank account is always advisable for the times of need. Under Section 80TTA of the Income Tax Act, the interest income from the savings account in a bank or post office is additionally deductible. However, a maximum of Rs 10,000 can be claimed a deduction.
Remember that this deduction is not allowed on the interest income from Fixed Deposits, recurring deposits, and corporate securities. However, a deduction under section 80C can be claimed on Fixed Deposits made in the post office scheme.
Further,under Section 80TTB, Senior residents (60 years or above) are allowed to claim a deduction of up to Rs 50,000 from bank Fixed Deposits or other deposits held in cooperative banks or Post Office.
Ensure you and your loved ones are in pink of health
Section 80D: Health insurance premium paid by you for your family and for your parents can help you save tax. Premium up to Rs 25,000 paid for yourself, your spouse and dependent children is deductible from your gross total income thereby reducing taxable income and saving tax. Mediclaim policy bought for your parents can help you claim additional deduction of up to Rs 25,000. If your parents are senior citizens i.e. above 60 years, then you can claim deduction up to Rs 50,000 paid as medical insurance premium.
Section 80DD: You can claim deduction of expenditure incurred on a dependent who is differently-abled and wholly dependent on you for support and maintenance. Deduction of Rs 75,000 can be claimed if disability is more than 40 percent but less than 80%. If the disability is more than 80 percent the deduction limit will be raised to Rs 1,25,000. Remember you cannot claim this deduction if dependent has claimed deduction under Section 80U.
Section 80DDB: Expenditure incurred on yourself or dependents for medical treatment of certain diseases is allowed as deduction from gross total income. The diseases are specified in Rule 11DD of the Income Tax Act. Some of the diseases are Parkinson’s Disease, Chronic Renal failure and so on. You can avail the tax benefit on actual basis for maximum up to Rs 40,000 per year.
If you or dependent is a senior citizen, then the benefit is lower of actual expense or Rs 1 lakh. To avail this benefit a medical certificate from a competent medical practitioner is required.
Section 80U: An individual gets deduction under section 80U if he is suffering from any of the specified diseases such as blindness, hearing impairment and so on. The amount of deduction is same as mentioned above in Section 80DD.
Schooling never goes to squander!
Your parents were correct when they requested that you try out advanced education courses. Besides receiving that training, you likewise get a tax benefit from the off chance you took out an instruction loan.
Section 80E: Interest paid on education loan is eligible for a deduction under Section 80E of the Income Tax Act. Interest paid on your education loan is deductible from your gross taxable income while calculating taxable income. Only interest paid on the education loan taken for self, spouse or children is eligible for deduction. The deduction can be claimed from the year the repayment starts and not from the year you took the loan. The deduction can be availed for maximum of 8 years or till the interest is paid, whichever is earlier.
One can also claim a deduction of the tuition fees paid for the education of two children in a school located in India under Section 80C. The spouse can also individually claim for two more children in case of more than two children in a family. However, the maximum deduction for an individual is the 80C limit of Rs 1.5 lakh. Single parents or unmarried guardians are also eligible to claim this deduction for their children.
Donate some part of your income!
Section 80G: It is our moral duty to give some part of our earnings to the society. Contributions made to notified relief funds and charitable institutions qualify for deduction under section 80G. This section offers deductions up to 50% or 100% of the donation subject to the limits stated in the Income Tax Act. To avail of the deduction, you should have a receipt containing the name, address, PAN, registration number of the trust along with name of the donor, amount donated.
Donations can be made in cash or via banking channels. But cash donations exceeding Rs 2,000 do not qualify for a tax deduction.
Planning of having your own house?
If you are planning of owing your own house, you should be aware of various income tax benefits on the home loans that can be used for acquisition or construction of a house. A list of all the deductions and exemptions that can be claiming on a home loan is provided below:
|Deductions||Section||Maximum Deduction (INR)||Conditions|
|Principal||80C||1.5 Lakh||house property should not be sold within 5 years of possession|
|Interest||24b||2 Lakh||loan must be taken for purchase/construction of a w house and the construction must be completed within 5 years from the end of financial year in which loan was taken|
|Stamp Duty||80C||1.5 Lakh||can be claimed only in the year in which these expenses are incurred|
|Interest||80EEA||1.5 Lakh||The stamp value of the property should be Rs 45 lakhs or less. The taxpayer is not eligible to claim deduction under section 80EE|
As you can see, payment of principal is also covered as a deduction in section 80C. So, if you can planning of owning a house during the year, it is advisable to reduce your investment or not invest in other schemes of Section 80C:
Other deductions and allowances:
Apart from the above, an individual is also entitled to many allowances and deduction depending on the nature of expense incurred such as House Rent Allowance, Leave Travel Allowance (LTA), Mobile reimbursement, Books and Periodicals, Food coupons, Relocation allowance, Children Allowances etc. each allowance has certain condition and limits subject to which they can be claimed.
Spread out the amount you intend to invest or spend over the year. This would save you from the hassle of doing things at the last minute. It would also lessen the financial burden on you at the end of the year and shield you from volatile market conditions. There is no questioning the fact that there is a financial plan that suits your ask and caters to what you need in every stage of life whether you are new to the corporate world, still trying to figure out your financial plan, or happily retired. Your investment and expenditure decisions should be based on time horizon, holistic financial goals, return on investment, and risk appetite.