The process of saving Income tax can sometimes be challenging. The burden can be shared with your spouse by investing in plans together, thereby, claiming taxes in proportion to your exposure. With inflation and the rising living cost, the burden of heavy taxes can be shared and reduced by investing in plans that reduce the tax burden for the family.
Income tax saving tips:
There are a few ways of saving taxes under Section 80C and 80D. Apart from claiming deductions under Section 80C and 80D, there is various other option of deduction under Section 80. The recommended ways are:
- To reduce taxable income, you must invest Rs.1.5 lakhs under Section 80C.
- On Home Loan Interest under Section 80EE, you can claim deductions up to fifty thousand rupees.
- Income earned by way of patents and royalties are liable for tax deductions under Section 80RRB.
- Under Section 80CCD, investing in National Pension Schemes helps you save additional taxes of about fifty thousand rupees. This tax benefit is provided over the benefits under Section 80C if the limit is exhausted.
- For medical insurance premium under Section 80D, you must buy Medical Insurance and claim deductions up to twenty-five thousand rupees, which will be fifty thousand rupees for senior citizens.
- Under Section 80DD, you can claim tax benefits for your disabled dependents for medical expenses. The deduction allowed for your dependent depends on the degree of the dependent’s disability. You can claim for deductions up to seventy-five thousand rupees if your dependent is 40% disabled, and one lakh twenty-five thousand rupees for 80% or more disability. You can also claim deductions under Section 80U if the individual taxpayer has 40% or more disability. However, deductions under Section 80DD and 80U cannot be claimed simultaneously.
- Under Section 80DDB, you can claim deductions for medical expenses incurred for treatment of a specific illness. The expenses of the treatment can be for yourself or your dependent. The maximum deduction that can be availed is forty thousand rupees if you or your dependent is below the age of 60, sixty thousand rupees if you or your dependent is above the age of 60 but below 80 years, and eighty thousand rupees for citizens above the age of 80.
- Under Section 80G, you can save up to 100% taxes of the donated amount for charity, if donated under certain government notified funds.
- Under Section 80TTA, you can claim deductions on the interest received in your savings account in a bank or post office. This can be claimed only if the interest earned in one financial year is not more than ten thousand rupees.
- Under Section 80E, you can claim deductions on the interest paid for educational loans. However, the benefit is available only up to 8 years from the date of the start of the loan repayment.
Best ways to save tax:
Buying insurances, investing in investment plans and loans have various benefits and can also help you save taxes.
Life insurance policies not only provide live coverage to you and your dependents but also helps you save taxes. Under Section 80C of the IT Act, you can claim tax deductions on the premiums paid in these policies.
Buying health insurance plans have become a necessity because of the rapid increase in the cost of medical expenses and medical care. The premiums paid for these plans are eligible for tax deductions of up to twenty-five thousand rupees. It is fifty thousand rupees for senior citizens.
Unit Link Insurance Plans:
These market-linked plans offer you benefits of both protection and investment with one single plan. These provide you with the opportunity to help you grow money and the financial investments did are eligible for tax deductions.
The lock-in period for a tax saving fixed deposits is five years. Fixed deposits in different banks are often used as a tax saving instrument. You gain high interest along with along with tax savings for that year for the money you deposit.
Post Office Time Deposits:
It has a lock-in period of 5 years, providing you with an attractive interest rate of 8.5% p.a. The minimum amount to be deposited id Rs.200. You can avail tax benefits under Section 80C of the IT Act.
The lock-in period of Equity Linked Savings Schemes if of 3 years and can be used to avail tax benefits. On investment, this scheme offers high returns.
Provident Funds or Pension Funds are important to help you reach your long-term goals and provide you long-term high returns. The investment made in provident funds are eligible for tax deductions under Section 80C of IT Act.
National Saving Certificates:
NSCs can be availed from post offices having a lock-in period of 5 years and ten years. The minimum amount you can invest is Rs.100. NSC investments are eligible for tax exemption.
Joint Home Loans:
The principal amount and interest paid for home loans each year up to one-lakh rupees are liable for tax deductions under Section 80C and one-lakh fifty thousand rupees for the interest under Section 24B of the Income Tax Act. Home loans availed for renovation and reconstruction are also eligible for tax exemption.
Ways to save tax:
Apart from the best tax saving options discussed above, there is HUF, Hindu Undivided Family that can help you save taxes. It is a traditional way to manage financial affair of the family and to save taxes along its way, popular amongst many business communities in India. A Hindu Family can come together to form the HUF, and it requires a legal deed, containing the details of the members and business details of the HUF. Under Section 80C, you can claim your tax deductions. Jains, Buddhists, and Sikhs can also form the HUF. In India, the HUF is led by a male member and can be passed onto the eldest female member only on the demise of the male member, despite the income the male and the female member earns.
It is very important to have financial planning to get the best returns. You must be well versed with the investment plans in the market to choose the one best suited for you and your family. The most important factor for couples is to plan their income and investment options, deciding on their priorities. The safety, liquidity and the returns provided by the tax saving instruments must be considered while planning.