8 Things You Must Know About Tax Saving
At the end of every financial quarter, you can claim a tax return based on tax-saving investments, tax-saving schemes, and other avenues that allow you to save on tax through the various sections of the Income Tax Act, 1961. Knowing these avenues can help you maximize your tax savings and contribute to your income growth.
Crucial things about tax saving in India
You must know how to claim tax savings.
Before you delve into the multiple ways to save tax, it is crucial to learn how you can go about the process. As mentioned above, you can save tax based on the various tax-saving sections under the Income Tax Act, 1961.
If you are employed under an employer, you can claim tax savings by submitting the proofs of the tax-saving investments made and the bills paid toward rent, loans, insurance, and the like at the start of the financial quarter. As an employee, your employer will deduct tax every month, but you will still be responsible for providing your employer with precise information and proofs. The percentage of tax deducted depends on the category of employment and the income earned per annum as per the tax slabs of the Income Tax Act.
However, if you are self-employed, tax-paying and saving will be your complete responsibility. You will need to keep the relevant proofs and documents to submit to the Income Tax Department.
You can turn to government schemes to save tax.
As per Section 80C of the Act, investments made up to ₹1,50,000 per annum in government schemes are eligible for tax returns. You can invest in government schemes such as the equity-linked savings scheme, public provident fund, employee provident fund, and more.
As you age, you can also depend on the National Pension Scheme (NPS) and senior-citizen scheme, among other schemes to save tax. Additionally, here are some government schemes you could invest in:
- National Savings Certificate (NSC)
- Sukanya Samriddhi Yojana (SSY)
Even opening traditional tax-saving fixed deposits (with a lock-in period of 5 years) in your bank can give you tax deduction up to ₹1,50,000 per annum.
You can get returns from a house rent allowance.
If you receive a house rent allowance as part of your salary from your employer and pay regular rent, you can claim for tax exemption by submitting the proofs of:
receipts or checks paid towards rent
Pan card of the landlord (if your rent exceeds Rs. 1,00,000 a year)
You can benefit from an education or house loan.
As per Section 80E of the Act, any interest paid towards an education loan is eligible for tax-saving. All you need is to submit the certificate of interest paid to the lender as proof while preparing your income tax return.
If you have a home loan on your shoulders, you can rest easy knowing you can claim returns on the interest amount paid up to ₹2,00,000. You can also save tax up to ₹2,00,000 on the principal amount paid, provided it is a self-occupied property and not one in construction.
You can make yourself and others smile with charitable donations.
Making charitable donations to government-approved funds, notified NGOs, political parties, or any other charitable institution makes you eligible to claim tax returns. You can get from 50% to 100% as deduction for the amount paid towards the donation. All you have to do is furnish proof or receipts of the donations made and quote amount and PAN of the Donee in your income tax return.
You can protect your loved ones and save tax with health insurance.
Buying a health insurance plan is a must not only for tax savings but also for financial security during unfortunate times. Concerning the tax element, the premiums you pay for a health insurance plan are eligible for tax deduction under Section 80D of the Act. Here, you can claim up to ₹25,000 for premiums paid for yourself, your spouse and children and claim up to ₹50,000 for premiums paid for yourself if you are a senior citizen or for parents who are above 60 years of age.
You can invest to grow your income and save tax* at the same time.
Investing in life insurance plans or Unit-Linked Insurance Plans (ULIPs) gives you dual benefits. By investing in a life insurance plan or ULIP, you can claim tax deductions up to ₹1,50,000 per year as long as your premiums don’t exceed over this limit. Investing in non-linked insurance plans like a guaranteed1 return insurance plan, for instance, are ideal as they give you optimum tax benefits and guarantee1 insurance and income growth at the same time.
The guaranteed1 return plans from Tata AIA Life offer a range of benefits, such as:
Life insurance protection
Flexible premium paying options
Two add-on riders# for extra security
The option to avail a loan against the guaranteed return plan
Tax benefits as per the relevant sections of the Act.
In fact, apart from the guaranteed investment plan, almost every other Tata AIA policy offers tax lucrative benefits.
You must know the right time to save tax.
Starting your tax-saving process at the beginning of the fiscal year is the appropriate time. That way, you can optimize your tax outgo from the start instead of having to claim refunds from the Income Tax Department. Moreover, you can align your investments and financial goals along with your tax-saving goals.
Tax-planning ensures you save more tax than you’re due towards the government. It prevents your income from being taxed more than it should. Apart from kick-starting your investment journey, it adds to your wealth from time to time and contributes to further investing and saving.