As citizens of India, we are also consumers of the country’s public infrastructure and facilities. When we want these facilities and infrastructure to improve, it is also our duty and responsibility to contribute towards building and maintaining it. Paying income tax and filing income tax returns is one way of doing that.
Tax planning is not difficult if we take a little interest in the same. When it comes time for us to submit or proofs in our respective offices or to our CA’s we start scurrying for answers, answers which can help us save maximum amount of Tax and this results in making forced savings which usually results us in making a financial mess.
While the government expects you to pay income tax, it also allows you to legally save on income tax. No matter how much taxable income you earn, there are certain exemptions and deductions available to all individual and HUF taxpayers that can be used to pay less income tax.
How to plan your tax-saving investments for the year
The best time to start planning your tax-saving investments is at the beginning of the financial year. Most taxpayers procrastinate till the last quarter of the year, and end up taking hurried decisions. Instead, if you plan at the start of the year, you can make investments that can also help you fulfill your long-term goals. Tax-saving investments should be used to build wealth as well, not only to just save tax.
Use the following pointers to plan your tax-saving for the year:
Diversify your investments
Keeping all your eggs in one basket is never a great idea. Even though investing the complete Rs. 1 Lacs in insurance or an ELSS can help you save tax, but it is important that you diversify and broaden your horizon while looking to invest. Each and every investment instrument comes with it’s respective investment guidelines thus the returns they offer are not similar. By diversifying you will ensure that you are not reliant on only one security for growth & security. Taking an example, ULIP’s invest majorly in Equity market, Life Insurance in Debt, ELSS is again Equity whereas NSC and Post office deposits largely in government bonds and money market instruments.
The most popular tax-saving options available to individuals and HUFs in India are under Section 80C of the Income Tax Act. Section 80C includes various investments and expenses that can be used to claim deductions. The Section 80C limit is 1.5 lakh in a financial year, which means that you can use this entire amount to reduce your taxable income.
This section provides a deduction to an Individual for any amount paid or deposited in any annuity plan of LIC or any other insurer. The plan must be for receiving a pension from a fund referred to in Section 10(23AAB).
Pension received from the annuity or amount received upon surrender of the annuity, including interest or bonus accrued on the annuity, is taxable in the year of receipt.
Look at other not so popular sections
Sec 80 D provides deduction in respect of medical insurance premium paid of individual or HUF, sec 80E provides deduction on account of interest paid on loan taken for pursuing higher education, sec 80 G provides deduction in respect of donations made to certain funds, charitable institutions etc. Sec80 GG provides deduction in respect of rent paid and many more such sections providing deductions in different respects.
Tax planning is not difficult if started at the right time and with the right mindset. All we need to do is to compare before we make an investment.
SUKANYA SAMRIDDHI YOJANA
Sukanya Samriddhi Yojana (SSY) is a small deposit scheme for the girl child launched as a part of the ‘Beti Bachao Beti Padhao’ campaign. It is currently fetching an interest rate of 8.1 percent and provides income-tax benefit.
A Sukanya Samriddhi Account can be opened any time after the birth of a girl till she turns 10, with a minimum deposit of Rs 1,000. A maximum of Rs 1.5 lakh can be deposited during the ongoing financial year. The account will remain operative for 21 years from the date of opening or until the marriage of the girl after she turns 18.