Tax Planning - Make your own Tax Saving Decisions

  • Posted By : reliancesmartmoney.com
  • Tuesday Oct 30, 2018

There is a famous saying attributed to Benjamin Franklin: In this world, nothing can be said to be certain, except death and taxes. Unless somebody discovers the elixir to eternal life, you can do nothing about the former. But the good news is, through proper tax planning, you can minimize how much you pay each year in the form of taxes.

In this piece, let’s discuss why it is essential to make your own tax saving decisions and the different options you can explore.

Importance of tax planning

As a responsible citizen of the country, you should honestly pay your taxes. But that said there is no obligation for you to pay even one rupee more than what is legally required. This is where tax planning comes into play. By understanding where you can minimize your tax payments, you can save a considerable amount each year. The less you pay in taxes, the more money you have for yourself. You can deploy these funds for better use for your family’s financial growth and future.

Tax saving instruments

The Income Tax Act offers various tax deductions to the Indian taxpayer. Here are a few tax planning options you can consider:

Equity linked saving schemes

Equity Linked Saving Schemes or ELSS are open-ended equity mutual funds  that are ideal for investing money in addition to tax saving. Under Section 80C of the Income Tax Act, you can claim a deduction on any investment up to Rs. 1.5 lakh per year. There are other options like Provident Fund, National Saving Certificate (NSC) and fixed deposits under Section 80C. However, ELSS funds have the potential to offer higher returns on your investments. Also, they have the smallest lock-in period of only three years (PPF investments: 15 years and NSC: 5 years).


 

Deductions available under Section 80C

 

Eligible schemes for deduction

Maximum deduction amount

Section 80C

  • Employee Provident Fund (EPF)
  • Voluntary Provident Fund (VPF)
  • Public Provident Fund (PPF)
  • National Savings Certificate (NSC)
  • 5 Year Post Office Time Deposit
  • 5 Year Tax Saving Bank Fix Deposit
  • Equity Linked Saving Schemes (ELSS)
  • Unit Linked Insurance Plans (ULIP)
  • Senior Citizens Saving Schemes
  • Sukanya Samridhhi Scheme

Rs. 1.5 lakh

Section 80CCC

Annuity and pension plans only

Rs. 1.5 lakh

Section 80CCD

Pension schemes notified by the government

10% of salary (Basic + DA)

 

Deductions available under Section 80D

 

Eligible schemes for deduction

Maximum deduction amount

Section 80D

Medical expenses (for you and family)

Rs. 1 lakh

Section 80DD

Medical expenses (for differently abled dependent)

Rs. 75,000 for normal disability

Rs. 1.25 lakh for severe disability

Section 80DDB

Medical expenses for specific diseases like dementia and Parkinson’s disease

Rs. 40,000 for people under 60 years

Rs. 1 lakh for people above 60 years

 
Life insurance policy

A life insurance policy is a great way to secure the financial future of your family in the event you are no longer around to take care of them. It not only takes care of any outstanding debts (credit card, home loans, personal loans) but also helps your family meet their financial needs like monthly bills and college fees. In addition to this, a life insurance policy also provides you with tax benefits. You can avail a tax benefit of Rs. 1.5 lakh on premiums paid during the year under Section 80C and 80CCC of the Income Tax Act.

Health insurance

Good health is considered to be the biggest asset of an individual. Only when you have good health can you carry on with your daily work and passions. But everyone visits the hospital from time to time either due to illness or unforeseen mishaps. At such times, a health insurance policy offers you coverage for medical expenses. It also provides an additional benefit.

You can claim tax benefits for all premiums you have paid during a year on your medical insurance policy under Section 80D of the Income Tax Act. If you are below the age of 60, the tax deduction limit is Rs. 25,000. This deduction is applicable on a health insurance policy for you, your spouse and dependent children. But if you are over the age of 60, you can claim a deduction of Rs. 30,000.

Conclusion

Tax planning is a significant aspect of financial planning. You should identify the areas where you can save tax each year and create a plan to achieve this goal. The best part is that the tax planning process is easy. Invest in multiple tax saving schemes and enjoy the benefits of the additional amount you save each year. You can consider investing through reliancesmartmoney.com to maximize your tax savings.

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