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5 Strategies People Use in Conventional Times to Save Tax
2-August-2021 |
Paying taxes feels similar to someone taking a bite off your ice cream that you so dearly wish to relish alone. Although most do not enjoy paying taxes, paying them helps the government improve public infrastructure and strengthen welfare schemes. In India, tax laws are governed by the Income Tax Act, 1961. Tax evasion is an offense, and income tax is calculated as per the income tax slabs set by the Ministry of Finance, with possible changes announced during the budget every year.
The good news is that your tax liability can be reduced by allocating capital to tax-saving instruments. There are several avenues for salaried or non-salaried persons with an income plan that can provide healthy tax-saving options.
Tax* Saving Investments Options
Under the Income Tax Law in India, you can avail of the benefits of reduced tax liability by investing in various tax-saving instruments in India, such as savings, insurance retirement planning, pension schemes, loans, etc. Here are some strategies individuals can use in 2021 and lower their tax burden by taking advantage of the provisions under the law:
Under Section 80C (up to ₹ 1.5 Lakh per year)
Insurance
For many insurance types, such as life insurance, ULIPs, term insurance, endowment policy, etc., the premium amount is eligible for tax deductions. You just have to ensure that your cover is at least ten times the annual premium.
Insurance plans offer a unique combination of insurance and investments. This helps investors inculcate a healthy habit of savings and provide promised returns at the right juncture. Therefore, investors can invest in term plans, especially when they are young, and benefit from lower premiums. The payouts can be planned in anticipation of major life events.
Investments
There are several investment schemes or tax-saving funds that offer tax deductions, for example:
Equity Linked Saving Scheme (ELSS).
National Saving Certificates (NSC).
Public Provident Fund (PPF).
Tax-Saver FDs (long-term extending more than 5 years).
Sukanya Samridhi Yojana (SSY) for a girl child.
National Pension Scheme (NPS).
Under Section 80D
Medical insurance premiums paid are eligible for tax deduction up to ₹ 25,000 per year. This limit is extended to ₹ 50,000 for senior citizens.
Under Section 80CCD(2)
In addition to the Section 80C limit of ₹ 1.5 Lakh per year, individuals can also reduce their tax liability by another ₹ 50,000 by investing in pension plans, such as the National Pension Scheme (NPS). (Subject to fulfillment of conditions)
One of the other tax-saving options for individuals coming from Hindu, Sikh, or Jain families is the Hindu Undivided Family (HUF) account. The Government of India recognizes HUF as a separate legal entity with a unique PAN and bank account, separate from the individual. You can earn a secondary income in the HUF account and file taxes according to the relevant income tax slabs, thereby saving on additional taxes had the income come to your existing salary account.
Tata AIA Life Insurance offers a unique insurance savings plan, Smart Income Plus (UIN-110N126V04), that offers the benefits of a term insurance plan, along with reductions in your tax liability.
You can choose the policy tenure to coincide with major life events, and be assured when the time comes, you will have much-needed liquidity.
People also ask:
How much can I save from being taxed?
How can I save tax in 2021?
How is tax calculated?
L&C/Advt/2021/Aug/1348
Under Section 80CCD(2)
In addition to the Section 80C limit of ₹ 1.5 Lakh per year, individuals can also reduce their tax liability by another ₹ 50,000 by investing in pension plans, such as the National Pension Scheme (NPS). (Subject to fulfillment of conditions)
Under Section 24 and Section 80E
A loan taken to construct or buy a home falls under the category of tax deductibles. The limit on principal amount is up to ₹ 1.5 Lakh as per Section 80C, whereas the interest amount has a limit of ₹ 2 Lakh per year as per Section 24 of the IT Act, 1961.
Education loans taken for self, spouse, or children fall under the deductible category under Section 80E. Deductions apply to interest amounts only and are uncapped.
Under Section 80G
Donations to government-approved charities also fall under the category of tax deductibles. For most NGOs, the deductions are capped at 50% of the donated amount, and for some, a rebate of 100% is allowed.
