5 Tax Saving Tips for Rookies in Corporate World
Your first salary reaching your bank account is a moment to cherish. It is something we all remember, and so is the pay slip that mentions the tax deduction. For most, it takes some time to get used to the tax deductions. Paying tax on income is a law in India and almost every other country. Using the taxes collected, the government plans its welfare and infrastructure spends. The Income Tax Act, 1961 governs the rules of taxation in India. While circumventing taxes is difficult, there are various tax-saving investments that can help you reduce your tax liability. After all, we slog to make a living, and every opportunity to save on your taxes is worth exploring. Money saved is money earned!
Tax*Saving Investment Tips
The golden rule is to start your tax planning at the beginning of the financial year and not wait until January every year. Out of several avenues that help maximize your income tax return by reducing your taxable income, here are some of the most popular ones:
Adding a savings insurance (term plan) to your investment portfolio is always a good option. It acts as an insurance savings plan because it provides life cover and the premiums are eligible for tax* deduction under Section 80C (up to ₹ 1.5 Lakh). Add-on riders# can help increase benefits. Moreover, when you are young, you can benefit from lower premiums. It also promotes the healthy habit of savings.
You can also consider Unit-Linked Insurance Plans (ULIPs) that give you exposure to capital markets, along with the benefits of insurance savings plans.
Health plans are a great way to cover medical emergencies in the family and take care of rising medical bills. The premiums up to ₹ 25,000 (extendable to ₹ 50,000 for senior citizens) are eligible for deductions under Section 80D.
Home/Car/Education loans also fall under the umbrella of tax rebates. A home loan is a good tax-saving investment as it provides tax benefits on both the principal (up to ₹ 1.5 Lakh under Section 80C) and the interest (up to ₹ 2.0 Lakh under Section 24) payments. Also, if you have an active education loan, the interest amount falls under the tax deduction category under Section 80E. However, taking a car loan might not be a good idea at the start of your career.
If you live in a rented apartment, you can also claim HRA in ITR as part of your compensation. A part of your rent is exempted under Section 10 (13A). It helps reduce the overall tax liability.
Products such as Equity Linked Savings Scheme (ELSS) funds, National Pension Scheme (NPS), National Savings Certificate (NSC), Public Provident Fund (PPF), tax-saving long term bank deposits (5 years+), etc., are available for investment and the money invested can help reduce the tax burden under Section 80C (up to ₹ 1.5 Lakh).
Philanthropy never goes unnoticed, and when you do your bit, the Income Tax Department supports it. Donations made to certain organizations approved by the government, such as the National Relief Fund, are eligible for tax rebates. Some go up to 100%, and other donations may attract a rebate of 50%.
Depending on your situation and requirements, you can select suitable options from the above tax-saving tips. Always remember, your investment portfolio should be balanced with ample coverage for a rainy day.
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.