The month of March brings intense activity with it every year. For this is the month that every salaried or self-employed person scrambles to compute and pay their taxes – and a lot of effort is generated in trying to save as much tax as possible. This month sees a veritable flurry of purchases for last minute insurance, or transferring large sums of money to PPF accounts or even donating to charitable organisations – there are so many ways to save tax in India.
The trick is to know which tax savings schemes to look for and how to get the maximum deductions for your investments every year. Most tax payers restrict themselves only to a few heads of tax benefits – home loans, house rent allowance, Employee Provident Fund, life insurance, et al. But there are other tax saving schemes that allow diversified tax deductions under various provisions of Indian income tax laws. In the following article, we will examine five good tax saving proposals for the financial year.
Who qualifies to pay tax in India?
All salaried and self-employed persons are considered tax payers in India, but the taxation structure depends on each person’s income bracket.
Hence, when one invests in tax saving schemes in India, the deductions are subtracted from the annual gross income and tax is computed on the remaining income in that financial year.
The 5 best ways to save tax in India – try them today
There are many legal ways to save tax in India, and you should be abreast of the best ways to do so, on the basis of your income, investment goals and future outlook. Merely buying into a tax saving instrument to save tax is counterproductive – if the instrument is not aligned with your financial goals, then it only ends up draining your resources while not providing much monetary benefit in return. Consider the following tax saving measures that apply to every taxpayer looking to save tax:
Invest in a house
Two birds, one stone cast at the right time. You have probably waited years and years to buy a house. Concurrently, your accountant has warned you that your current investments are not sufficient to cover you for the financial year – which means that you will have to pay some amount of money in taxes when you file your IT returns in March. So why not buy that long-coveted house this year? Not only will you get your wish of owning a home, you will also get tax deduction under Sec 80C of the Income Tax Act, 1961. The deduction is given for the principal amount repaid under the home loan. Ask your accountant for the different heads under which you can claim tax deductions for home loans.
Invest in tax saving schemes
You can save a combined Rs. 1,50,000 via tax deductions when you invest in instruments that give tax benefits under Sec 80C, Sec 80CCC and Sec 80CCD of the Income Tax Act, 1961. Under these three heads, you can invest in such tax saving schemes as Public Provident Fund (PPF), 5-year tax saving FD, life insurance plans, pension plans, National Savings Certificate (NSC), Kisan Vikas Patra (KVP), Equity-oriented Mutual Fund (EMF) and Equity Linked Savings Scheme (ELSS).
Donate to charity
Give back to society the abundance of blessings that you have, and you will be blessed once more in return. At least, this holds true in terms of getting tax benefits in India! Additional tax savings comes your way under Sec 80G for donating money to charities registered and based in India. There is a rider, though – only those organisations registered in India qualify for this deduction. Hence, you cannot donate to a one-month old informal shelter for strays and demand a tax benefit. The donation must be made in cash or cheque only. You can claim a deduction up to Rs. 10,000 if you donate in cash (keep a receipt for your accountant’s records) but you must donate via a cheque for higher tax benefits. Bear these sums in mind the next time you scramble to get your tax monies in order.
Take an education loan
Now’s a good time to get your child on the fast track to academic success – take an education loan for their further studies and avail of tax benefits on the interest that you pay on it. Bear in mind that you get a tax benefit only for the interest component and not the principal amount. Even if your child is too young right now or too old for future education, you can still take an education loan even for your spouse, yourself or a close blood relative (such as a sibling). The same tax saving benefit applies under Sec 80E of the Income Tax Act, 1961.
Invest in your health
Since you are looking to save tax anyway, how’s this for some reduced heartburn? The Government actually rewards you for investing in your own health, or that of your spouse, children or close blood relatives. You can avail of tax benefits under Sec 80D (for investing in health insurance premium for yourself and/or your spouse and/or your children), Sec 80DD (expenditure on treating physically handicapped dependent family members) and Sec 80DDB (expenditure on treating your own or spouse or children or close blood relatives’ specified critical illnesses). You get maximum deduction of Rs 35,000 in this category.
So there you have it – five excellent tax saving instruments which you can easily avail of for tax benefits this year. We would urge you to look into them right away – there may not be enough time at the end of the year! Plus, giving yourself enough time to plan your investments also gives you the breather to arrange for sufficient finances.
Featured image source: CarsRush