One strategy to reduce taxes and boost your income is through tax planning. Deductions are allowed by the income tax legislation for a variety of expenditures, savings, and investments made by the taxpayer during a specific fiscal year. We’ll talk about a few ways you can reduce your tax liability.
Here are some effective tax-planning strategies that also promote financial health:
Purchasing tax-saving assets
As Per section 80C of the Income-tax Act, 1961, the government has granted various deductions on the amount deposited in specific instruments in order to motivate residents to save. Common specialized investment products for income tax planning include the following:
- Public Provident Fund (PPF)
- Employees Provident Fund (PPF)
- National saving certificate (NSC)
- A fixed deposit (tenure of 5 years or more)
- Mutual fund schemes ELSS
- Other pension programs, such as the National Pension Scheme (NPS)
Get health coverage
Having health insurance is becoming essential due to India’s escalating medical costs and declining health standards caused by several causes. These insurance plans ease the financial burden on people and their closest relatives during times of deteriorating health. The government offers tax rebates to encourage people to purchase these insurance policies, allowing them to receive high-quality care at renowned medical facilities for little to no extra charge. Under section 80D, taxpayers may subtract from their taxable income the number of their yearly premiums.
Tax advantages for house loans
If a residential loan is taken out from a finance company like a bank, NBFC, or housing loan business to purchase or build a home, the interest, and principal spent on the loan can be deducted from taxable income up to a certain amount, as allowed by the tax regulations. Remember that Section 80C’s overall maximum of Rs. 1.5 lakh applies to the exemption for the principal amount. Owning your own house and tax planning are two benefits of this scheme.
The lock-in period for equity-linked tax savings schemes, a kind of investment option, is basically of three years. In India, it is the sole type of mutual fund that is capable of receiving a tax exemption as per Section 80(C) of the Indian Income Tax Act. Equity market holdings are the main type of investments made, which results in long-term returns that are much greater than those of other tax planning strategies. You have two options for investing: a flat sum or a SIP (Systematic Investment Plan).
Deductions for areas like tuition fees as well as other expenses
It’s vital to keep in mind that in some cases, tax benefits might be obtained in conjunction with specific expenses incurred, such as Rs 5,000 for precautionary regular checkups, even if one makes no further investment. However, the aggregate limit per section 80D, which comprises the aforementioned health insurance premiums, applies to the deduction for expenditures on health checkups. Additionally, parents can subtract up to Rs 1.5 lakh from their taxes for the college and school tuition fees they spent for their kid’s education under 80c (up to a maximum amount of Rs 1.5 lakh).
The expense of term life insurance
If you’ve purchased life insurance, your premiums may qualify for Section 80C tax deductions. Paying insurance premiums for oneself, a wife, minor children, and any other members of the Hindu Undivided Family qualify. The annual cost, up to 20% of the guaranteed total, becomes exempt from income if the insurance was purchased on or before March 2012. 10% of the basic sum for insurance plans acquired on or after April 2012, is deductible.