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Planning your taxes at the 11th hour may lead to bad investment decisions or less than optimal tax-saving strategies. That's why it is important to plan your tax saving investments right at the start of the fiscal year.
Let’s walk through the best tax-saving options available in India under various sections of the Income Tax Act, 1961. We will start with the most popular tax saving investment options under Section 80C.
You can claim tax deductions of up to 1.5 lakhs under Section 80C of the Income Tax Act with investment options like ELSS funds, NPS, PPF, and more.
ELSS funds are considered to be the best tax saving option under Section 80C because of the low lock-in period and potentially high returns.
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Tax Saving Fixed Deposits (FDs) are like your average bank FDs but carry a mandatory lock-in period.
Read this blog to know more about alternatives to FDs
Employee Provident Fund (EPF) is available for employees who work for companies that fall under the PF act.
The employer will deduct a fixed sum from your salary every month and deposit it to the EPF account. The employer will also contribute the same amount from their pocket to your EPF account.
National Pension Scheme (NPS) is a government-backed investment option where investors can claim a tax deduction of up to ₹1,50,000.
Read this blog to find out about the best retirement investments
Public Provident Fund (PPF) is a government-backed investment option where deposits are eligible for a tax deduction.
Parents or guardians of a girl child can open an account under the Sukanya Samriddhi Yojana Scheme.
Contributions to the National Pension Scheme (NPS) and Atal Pension Yojana can also be used to claim deductions under Section 80CCD (a subsection of 80C).
Avoid these tax saving mistakes in 2021
The life insurance premium that you pay is eligible for tax deduction under section 80D. The deductible amount varies based on who's paying the premium and for whom.
Here's the breakdown of the tax deduction:
It's important to note that you shouldn't get life insurance coverage just to save tax. It is an important tool that protects you from illness and disasters. Thus, it would be advisable to choose your plan wisely.
Read this blog to learn about the 5 best investment tips for 2021
The interest that you pay on a loan for higher education either for self, spouse, or children (as a parent/guardian) can be claimed as a deduction under Section 80E.
However, the loan must be taken from a recognized financial establishment or charitable institution. You can claim the deduction for up to 8 years. There is no maximum deduction claim amount.
First-time homeowners can claim a deduction of up to ₹50,000 under Section 80EE using the interest payment on a home loan. Interest paid on a vehicle loan for an Electric Vehicle is also eligible for deduction.
Homeowners can further claim a deduction of up to ₹2,00,000 on their home loan interest under Section 24 if they or their family live in the house or even if it is vacant.
The whole interest amount can be claimed as a deduction if the house is rented out. Municipal taxes paid by a homeowner in full can be claimed as a deduction under Section 24.
You can claim a deduction under this section if you've made a charitable donation to a government recognized charity or social institution.
A tenant can claim a deduction under Section 80GG for the house rent paid in case the tenant does not own a house of their own or get HRA.
Planning your taxes the right way can help you save wealth and in the case of ELSS funds, it can even help you grow wealth over the long term with lucrative returns.
However, it's important to begin your tax planning today to invest wisely for FY 2021-22. Remember to choose your tax-saving investments based on merit and need than to save a quick buck.
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1. For regular tax-paying individuals
2. For tax-paying senior citizens (above 60)
3. For tax paying super senior citizens (above 80)
4. For tax-paying Hindu Undivided Families (HUFs)
Ans. Tax planning for multiple sources of income involves optimizing deductions, exemptions, and investments to minimize the overall tax liability.
Ans. For tax deductions, you typically need to provide documents like investment certificates, premium payment receipts, and proofs of interest or principal payments.
Ans. Seeking professional guidance, such as consulting with a tax advisor or financial planner, can be beneficial for creating a personalized tax-saving strategy.
Ans. The deadline for tax-saving investments in 2023 may vary, but for most instruments under Section 80C, it's typically by the end of the financial year (March)
*Note: Facts & figures are as of 12-04-2021. While we update our blogs regularly, download the Cube Wealth app to know the latest information.
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