With the deadline for filing of tax returns this year looming large, most people within the tax bracket are now frantically looking for ways to save money on income tax. If you have not made plans the rest of the year for this, now is the time to do so.
Although it is always better to do long-term planning way before the income tax filing deadline the old adage ‘‘better late than never’’ holds true here, as always.
Paying taxes is an important duty of every citizen and while there is no doubt that you can help the country prosper and develop through the taxes that you pay, there is no denying the fact that it is also a good idea to try to save money on your income tax, which can then be used to invest or save. So here are some smart ways you can save on income tax this year:
Get a health insurance policy:
With the cost of healthcare going up exponentially, and with the current Covid-19 pandemic raging without abating, it makes sense to get a health insurance policy for its own sake, even if there aren’t any other benefits to it. If you have a health insurance policy, you can be assured of being able to afford the best healthcare for yourself and your loved ones but without putting a burden on your finances.
However, not withstanding the benefits of a health insurance policy on its own, did you know that having such a policy also helps you save on income tax? In fact, the government offers such tax benefits to individuals in order to encourage them to take a health insurance policy, thus ensuring that everyone gets quality healthcare at zero cost or affordable prices.
This is why you can claim tax deductions on the amount from your annual taxable income that was spent on paying the premiums for your health insurance policy. This is applicable under Section 80D of the Income Tax Act, 1961.
For those below the age of 60, including children and spouse, the maximum deduction that can be claimed is Rs.25,000. For parents who are below the age of 60, an additional Rs.25,000 can be claimed as deduction. For parents who are above the age of 60, the deduction that can be claimed is Rs.50,000. If you and your parents are both above the age of 60, then you can claim a maximum deduction of Rs.1 lakh.
Buy a life insurance policy:
A life insurance policy is one that people take keeping in mind the adage ‘‘expect the best but prepare for the worst’’. In the event of the untimely death of the policyholder, it is of immense help to the family if there is a life insurance policy that can cover their living expenses for the present as well as for the future. So this is one of the most important investments you can take to safeguard your family’s welfare in your absence.
Did you know that there are tax waivers on the premium that you pay towards your life insurance policy as well as on the maturity amount of your policy? You can get tax deductions of up to Rs.1.5 lakh on the annual premium payments under Section 80C of the Income Tax Act. This is applicable only if the maximum deduction amount is lower than 10% of the total sum assured of your policy, and that only for policies that were taken after 1 April 2012.
However, if your policy was taken before that date, you can still claim for deductions if the total premiums does not exceed 20% of your sum assured amount.
Home loan benefits:
If you have a home loan, the amount from your annual income that was spent on the principal component of the loan is eligible for deductions of up to Rs.1.5 lakh. You can claim up to Rs.2 lakh annually as tax deduction on the interest component of your loan. If you are a first-time home buyer, apart from the deduction on interest, you can also avail a total waiver that is up to Rs.1.5 lakh, if the stamp duty of your property does not exceed Rs.45 lakh.
However, if the new property is let out for rent, then the full interest component will be exempt from annual income tax.
Home loan on rent:
If you are paying rent, you can claim tax exemptions under your House Rent Allowance, provided your salary breakup includes this. If your salary breakup does not include HRA, you can still claim deductions for the yearly rental expenses.
Savings schemes:
Government saving schemes offer guaranteed returns as well as security. Apart from this, you also get tax wavier of up to Rs.1.5 lakh on your total annual income. Some examples of such government schemes are: National Pension Scheme (NPS), Senior Citizen Savings Scheme (SCSS), Public Provident Fund (PPF), and Sukanya Samriddhi Yojana (SSY). Tax savings fixed deposits schemes, which have a 5-year lock-in period, also offer up to Rs.1.5 lakh as tax waiver.
Equity Linked Savings Schemes (ELSS) which have a 3-year lock-in period, come with tax waivers of up to Rs.1.5 lakh. Also, there is no tax on profits for total capital gains that do not exceed Rs.1 lakh
Conclusion
Keep in mind that for several categories, the total income tax waiver under section 80C is Rs.1.5 lakh and is not separate. However, this is still a significant amount of savings if you invest and save carefully through the year. Paying your taxes and helping the nation while also saving money for yourself is the smart way to go for all!