The financial year is about to end, and there is no room for procrastination anymore. If you do not plan to do your taxes now, you will end up paying a hefty sum. So now is a good time as any to plan your tax saving investments.
If this the first time you are planning your taxes, then you need to take your age, risk profile, dependents, and liabilities to come up with the best investment plan.
Your tax saving investment optionsshould always be made up of financial instruments that help you reach your financial needs and future goals. These should be distributed across your asset classes to not only help you lower the tax burden but also build a portfolio that will help you reach each milestone with ease.
To avoid panic investing at the last minute, use the tips in this article to build the best investment planportfolio. Doing so willhelp you reduce your income tax and create a veritable mix of investments to reach your financial goals.
Here are some income tax-saving tips to help you improve your tax planning skills.
- Invest in Insurance Instruments
Life insurance is one of the best tax saving investments. Not many taxpayers know this, but they can avail of a benefit if up to Rs. 1.5L per annum on their life insurance premiums!
By investing in a term policy, you get not only the tax benefit but also the ability to secure your family against life’s eventualities. You pay the premium every year to keep the policy active, and should something happen to you during the policy term; your loved ones will get the sum assured as financial support. Online term insurance plans from insurers such as Max Life Insurance enable you to compare and choose the best policies as per premium amounts and insurance benefits.
You can also claim a tax deduction on the health insurance premium paid for yourself, spouse, children, and your parents under Section 80D of the Income Tax Act. The limit for senior citizens is set at Rs. 20,000 and for others at Rs. 15,000. You can also claim expenses incurred up to Rs. 5,000 on health checks within this limit.
- Saving Taxes through investments
There are also several other tax saving investment options that are eligible for tax deductions under section 80C, 80CC, and 80CCD. Some of them include fixed deposits, Public Provident Fund, and Unit Linked Insurance Plans. You can choose any of the best tax saving investmentsasper your financial objectives and risk appetite.
- Home loan
Another one of the popular tax saving investments is home loans. If you are planning to buy a home or have already bought one with the help of a home loan, then you can claim deductions on the principal amount under Section 80C of the Income Tax Act.
You can also claim the interest paid to the lender under Section 24 of the Income Tax. Together, these deductions can save you up to Rs. 2,00,000 per annum. These deductions are also applicable when you take a home renovation or construction loan.
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If you took an education loan for yourself, your spouse, or your children, then you are eligible to claim tax deductions under Section 80E of the Income Tax Act.
Education loan offers a robust way of saving taxes as there is no maximum limit on the deduction. However, you can only claim the deduction on the interest rate and not the principal.
Additionally, if you have children who are being educated, then you are eligible to claim the deductions under sections 10(14) and 80C. Under 10(14), you get an allowance of Rs. 100 per month, per child. Under section 80C, you can claim up to Rs. 1 Lakh paid towards the tuition fee.
- Equity Linked Savings Scheme (ELSS)
ELSS is one of the most preferred tax saving investment options in the Section 80C basket. These funds generate the highest returns amongst all tax-saving instruments. They also offer the shortest lock-in period of three years. Any gains made up to Rs. 1 Lakh are tax-free. However, since ELSS funds are volatile, it is advisable to educate yourself about the risks before investing.
- Unit Linked Insurance Plans (ULIPs)
ULIPs are low-cost investment cum insurance plans that help you not only save taxes but also build wealth over some time. You have the freedom to choose between debt and equity fund asset classes as per your risk appetite that makes them relatively safer in terms of investments, not to mention the tax they save you under Section 80C of the Income Tax Act!
There areseveral taxsaving investments that you can consider to plan your taxes and reduce your tax liability. However, to make the right decision, it is essential for you, as a taxpayer, to avoid any last-minute rush and start planning as early as possible.