7 Easy Ways to Save Taxes
Updated: Jun 11, 2020
Take charge of your investments and go income-tax-free! (Well almost)
The new financial year is here, and along with it, the perfect time to plan your finances and tax-saving options. So, before you start spending for the upcoming summer, here’s a list of things you need to think about.
1. The savings plan
First, plan your tax-saving investments. Are you eligible to pay tax? Do you already have any tax-saving expenses such as house rent, loan premiums and so on? If yes, then figure out how much extra you need to invest. The 2019 Budget promised full income tax rebate for individual taxpayers with annual incomes of up to ₹5 lakh. So if you avail the deductions of ₹1.5 lakh, as allowed under Section 80C, then you can go home tax-free for an income of up to ₹6.5 lakh per annum.
Action Plan: Make full use of the deductions allowed under Section 80C. These may be Personal Provident Fund (PPF), Sukanya Samriddhi Yojan, National Saving Certificate (NSC), life insurance and others.
2. En-route your bank
There is a variety of options for legally saving your taxes, as per Section 80C of the Constitution. Many of them revolve around your banks.
Action Plan: Get your savings into a Personal Provident Funds (PPF) for a longer lock-in period. The PPF will provide you with slightly more than an average return of 6-7% return than a fixed deposit account generally does. The other option is also the National Pension System (NPS). As its name suggests, it is designed to encourage people to save for retirement. While this gives you tax benefits and has relatively steady growth, it does have a lock-in period of 30 years, and fund withdrawal in its entirety upon maturity is subject to taxation.
3. The stock game option
Let’s talk about the ELSS Fund. What is it? It’s a type of Equity Mutual Fund that is specifically built to save your taxes. By investing ₹1.5 lakh a year, you can save up to ₹ 46,800, but the saving has a lock-in period of 3 years. Keep in mind that it is an equity-linked mutual fund – which means the risk and returns are both high. While it is one of the tax saving options, make sure it aligns with your investing approach.
Action Plan: Identify a suitable ELSS fund and know whether it suits your risk appetite before you invest.
Whether you’re a married woman or single, you need medical insurance. It is high time we women understand the complications of depending on the insurance of our spouse or father. And not just because insurance premiums are tax deductible, but also because you’re primarily securing your future health!
Action Plan: Get your medical and life insurance policies, and if you are thinking of starting a family, you might also want to add maternity insurance to the package. Remember, the older you are at the time of taking the insurance, the higher your premium will be. So get into the game early for low premiums and more significant benefits.
5. Your debt can save you
Invested in a new home recently? Use the loan as a tax-saver. You can claim deductions in your income tax of up to ₹5 lakh on home loan interests. There are different sections of the Income Tax Act under which you can claim a deduction on the principal, the interest and on stamp duty. You can also get an income tax deduction on your education loan. Compared to our previous generations, women are more educated and more independent than ever before. Taking an education loan to further your education makes smart sense as you are adding to your qualifications and future earning capabilities. And this education loan can also help you cut down on taxes.
Action Plan: To claim income tax deductions, get a certificate from your bank that says you are paying back a home loan. File the claim for an income tax deduction while filing your returns. Research on educational avenues to enhance your professional qualifications and future employability.
6. Charity – feel good, save well
Donate to a registered NGO in India and save, with an added benefit for your soul.
Action Plan: Find a cause that you can identify with. Ensure that the NGO you pick is registered. Only then can you claim the deduction.
7.Your children’s education
You can cut down on your taxes by documenting your children’s tuition fees (maximum two children).
Action Plan: The total amount you can claim for deduction is ₹ 1.5 lakh including all your other savings.