Akash Jindal was a young lawyer who was about to pay a huge amount of tax. He had not been too wise with his investments. And now, he was about to pay the price. Desperate to find a way out, he knocked the doors of his financial counsellor, Avinash Gupta. The vastly experienced Gupta knew exactly what Akash could do. With the right investments in place, Akash could reduce his tax burden.
With the end of the financial year upon us, you don’t have too much time to figure out your taxes. In fact, you may already have made some investments. If you have not, this is the right time to make your move.
Effective tax-saving strategies
From investments to insurance, there are a lot of ways for you to save tax. Let us take a look at some of the tax-saving instruments:
- Insurance: The premiums you pay towards your life insurance policies are exempt from tax under Section 80C. This holds for your health insurance policies as well. Insurance is one of the best tax-saving tools. You get to save tax and also cover your life and health against unforeseen misfortunes.
- National Savings Scheme: The Income Tax Act allows a deduction of up to Rs 1.5 lakh from your taxable income. You can invest the entire amount in a National Savings Scheme (NSC). Or, you can divide your investments. The NSC is a good and safe investment option that guarantees returns.
- Public Provident Fund: This is another great investment option that allows tax benefits. The Public Provident Fund (PPF) is an account you can open at any post office. You can deposit an annual amount of Rs 1.5 lakh at the most and at least Rs 500 in the account. You do not have to pay taxes on the deposits.
- Fixed deposits: Next, we have the ever-dependable fixed deposits (FDs). Most people trust FDs as investment tools. These offer good returns at low risks. But, you must be careful while choosing an FD. Not all FDs offer tax benefits. There are specific tax-saving FDs. So, speak to your bank before you invest in one.
- Housing loan: A home loan is another good tax-saving tool. Have you taken a loan to buy an apartment? Maybe you used it to build a new house or renovate an existing property. Did you know you can claim tax benefits on it? The principal component of the monthly instalments is tax-free.
- Reimbursements: You can also reimburse certain expenses and get tax benefits on them. For example, you can reimburse any tuition fee you pay for your children. Then, you can reimburse your house rent bills (house rent allowance). This also holds for your leisure and travel expenses (leave travel allowance).
- Section 80D: Do you have a health insurance plan? Then you will get extra tax benefits under Section 80D. These benefits are over and above those you get under Section 80C. Depending on your age and policy type, you can get a tax discount anywhere between Rs 25,000 and Rs 65,000.
The Bottom Line
Assess your existing investments and expenses to see how much tax you are eligible to save. If there is scope for more, make an investment right away. Submit the documents on time and save tax. Speak to your employer. Find out how reducing the tax burden can increase your savings. Tax deductions are simple to work out. You must make every effort to ensure that you save the highest possible amount.