At the end of every fiscal year, you start looking for ways to reduce your taxable income. Instead of looking for quick ways to reduce your taxable income at the end of the financial year, it is prudent to begin tax-saving in advance, with proper knowledge about the best ways to save tax on your income.
The government allows various exemptions to allow citizens to save their taxes. There are various tax-saving instruments which can reduce your tax liability by decreasing your taxable income. You can save your taxes through these 4 basic components:
- Investing your savings
- Buying insurance
- Paying back your loans
- Donating to charitable institutions
Read on to understand how:
Tax benefits under section 80(C)
The most popular tax saving options are available under Section 80(C) of the IT Act. It includes various investments and expenses that can be used to reduce your taxable income. The government allows deductions up to Rs. 1.5 lakhs for investments made in the instruments as specified in this section and its sub-sections. Some of them are as follows, - Invest your savings in government schemes like Public Provident Fund (PPF) accounts, National Savings Certificate, Kisan - Vikas Patra
- Plant your savings in 5-year fixed deposits
- Invest in notified pension schemes like National Pension Scheme
- Pay life insurance premiums
- Invest in Unit Linked Insurance Plans (ULIPs) or Equity Linked Savings Scheme (ELSS)
Save tax on your health insurance
Your Health Insurance Package can turn out to be an efficient tax saving tool for you. You can claim tax deductions under Section 80(D) of the IT Act for paying premiums towards health insurance for yourself, spouse, children or parents. Amendments made in the Union Budget, 2018 have further extended tax benefits by raising the exemptions under this section.
- A maximum deduction of Rs.25,000 is allowed for paying health insurance premium for your family
- An additional deduction of Rs.30,000 is allowed for health insurance premium of your senior citizen parents
- Exemption of up to Rs.50,000 is allowed for Health insurance premium if the applicant is a senior citizen
- A maximum deduction of Rs.1,00,000 is allowed for senior citizens against critical Health insurance premium
Tax saving on home loans and education loans
You can also claim tax benefits by availing a Home loan or education loans under different sections of the IT Act. Tax planning for saving on income tax with a home loan is highly beneficial as you can claim deductions under three different sections.
- You are allowed to claim deduction U/S 80C for repaying the Principal amount of your Home Loan
- You can claim tax deduction up to Rs.2,00,000 for interest paid on your Home Loan U/S 24
- You can claim an additional exemption of Rs.50,000 U/S 80EE for your first house purchase
- You can claim tax deduction against Education Loan for you or your family U/S 80E
Remember, the best time to start your tax planning is the beginning of the fiscal year. Don’t procrastinate until the last quarter to avoid frantic investments to save taxes. With tax-saving tools like a health insurance plan or a home loan plan, you can also attain financial security and establish your long-term goals.
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