Imagine you have Rs 3000 and you decide to have a hearty meal at your favourite restaurant. You order food worth that amount but the waiter comes with a bill of Rs 3400. Uh oh! You forgot about taxes! Unfortunately, you can’t avoid taxes in a restaurant. But fortunately, you can avoid taxes on your income, thanks to tax planning.
How to plan your taxes?
First things first – Don’t wait for the 11thhour to plan your taxes. Start well in advance so that you can not only save tax but also better your financial life.
Planning taxes is not all that hard, as long as you know the tax deductions and exemptions under the Income Tax Act, 1961. You can reduce your taxable income by means of your investments, health insurance, home loans, donations, etc.
Let’s understand this.
Tax deduction on investments under Section 80C
Section 80C includes several tax-saving investments. Such investments allow you to claim a tax deduction of up to Rs 1.5 lakh every year. Here’s where to invest money to save taxes under Section 80C:
- Equity Linked Saving Scheme(ELSS)
ELSS mutual funds invest in equity and equity-related securities. They offer tax deductions of up to Rs 1.5 lakh annually that can help you save up to Rs 46,800 in a year. Moreover, ELSS funds have a lock-in period of three years. So, your gains are taxed as long-term capital gains at 10% upon redemption, which is relatively lower than the short-term capital gains tax of 15%. Not done yet! Gains of up to Rs 1 lakh/year on along-term investment are tax-exempt. So, there are no taxes until your profits cross Rs 1 lakh annually.
There’s more!Investing in ELSS mutual fundscan help you get dual benefits of tax saving and wealth creation. To maximise returns, you must stay invested beyond the lock-in period and allow equities to realise their potential. Want to estimate your returns on ELSS? You can use an ELSS calculator.
- Other investments under Section 80C:
- 5-year bankFixed Deposit (FD)
- Public Provident Fund (PPF)
- National Pension Scheme (NPS)
- National Savings Certificate (NSC)
- Sukanya Samriddhi Yojana (SSY)
- Senior Citizen Saving Scheme (SCSS)
- Unit Linked Insurance Plans (ULIPs)
- Check out some other optionsbeyonddeductions underSection 80C:
- The more the merrier, right? 80CCD (1b) provides an additional tax deduction of Rs 50,000 on NPS other than the one under Section 80C.
- Health is wealth quite literally as Section 80Doffers a tax deduction of up to Rs 1 lakh for medical insurance for self, spouse, children, and parents.
- Taking care of someone is crucial. To help you help others, Section80DD provides a tax deduction of up to Rs 1.25 lakh for the medical treatment of handicapped dependentswitha minimum of 80% of any disability.
- Earned interest on your savings account? Use it to save tax under Section 80TTA with a tax deduction of up to Rs 10,000 on the earned interest.
These are just a few areas where you can save tax. There are several other provisions that you can use to minimise your tax outgo. You can consult a financial advisor to explore them.
Conclusion
Tax planningis simple if you know the rules. Now that you are aware of tax-saving investments as well as other options under the Income Tax Act, go ahead and plan your taxes well.
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MUTUAL FUND INVESTMENTS ARE SUBJECT TO MARKET RISKS, READ ALL SCHEME RELATED DOCUMENTS CAREFULL
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MUTUAL FUND INVESTMENTS ARE SUBJECT TO MARKET RISKS, READ ALL SCHEME RELATED DOCUMENTS CAREFULLY.
