Tax Planning Guide for Beginners
Tax planning for a beginner can be understandably complicated. The terms and processes might be unfamiliar and confusing if you are a beginner. A preparatory guide can prove to be extremely useful if you are a new taxpayer. Planning will help you identify ways to save through various tax benefit investments.
At the start of your career, it is generally a struggle to save and invest with your short-term needs that demands a significant portion of the income. Therefore, understanding how to save money from tax can prove to be effective in reducing financial stress. When you know how to save money from tax, you can protect it from unnecessary taxation and utilize it for other needs. There are multiple tax benefit investments specified under some sections of the Income Tax Act, allowing you to save tax legitimately.
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Let’s take a look at some of these sections that will enable tax benefit investments:
There is a certain amount allotted to you by your employer as House Rent Allowance (HRA). It is provided to the employee on the condition that they are living in rented residential premises. If you do not live in such accommodation, this allowance is fully taxable. Section 10-13A provides HRA exemption of tax in the Income Tax Act. According to it, 50% of the employee’s salary is eligible for HRA tax exemption in case they reside in any of the metro cities of India. For other cities, it is 40% of the salary.
If your owned property is rented to someone else and you reside in other accommodation, you can avail of the tax exemption from both the home loan and the rent paid. You can even claim the deduction if you do not receive HRA from your employer subject to a few conditions under Section 80GG.
- Section 80(C)
There are multiple tax benefit investments listed under this section, such as life insurance policies, PPF, EPF, and ULIP. If you invest in any such instrument, you can claim tax exemption up to Rs. 1.5 lakh. As a beginner, you must analyze the most beneficial investment opportunity for yourself in terms of time and tax-saving. When you learn how to save money from tax, capital investment will be a source of financial relief instead of a strain. For instance, the premium paid for a life insurance policy covering yourself, spouse, children, is eligible for a tax deduction. Such investments result in the dual benefit of ensured stability in the future as well as tax-saving in the present. A life insurance policy is an essential instrument when you begin your career. Trusted providers like Max Life Insurance help your decision by providing a calculator for the insurance amount you would require according to your age, lifestyle and other factors.
- Section 80(D)
When you begin earning, one of the first investments you must focus on is a health insurance policy. The costs of medical treatment are increasing at a rapid rate. In the case of a medical emergency, money can add substantially to your worries. Medical insurance not only covers your health, but it also allows you to save money from tax. It is one of the most tax benefiting investments that you can make as a beginner. There are different limitations on the maximum deduction, depending on the relation of the insured and the policyholder.
- Section 80 TTA
The interest received on a savings account is taxable. Fortunately, since the government wishes to encourage people to make savings, the interest earned on a savings account is eligible for a tax deduction under this section. However, the interest earned on the time-bound deposits such as fixed deposit or recurring deposit is not qualified for a tax deduction. Your savings account must be with a bank, post-office or a co-operative society. It is a straightforward tax benefit investment that can be missed out if you do not keep a tab on your monthly statements.
There are some dreams and wishes that you may want to fulfil once you start earning. It is possible if you learn how to save money from tax, which often drains you financially. After fulfilling your duties as a taxpayer, you might end up with insufficient funds for yourself. The numerous tax benefit investments are a relief for salaried individuals.
Choose your investments wisely for maximum tax benefit from investments.