Spending a lot in paying income tax? It might be due to poor management of the finances that make it complicated for you to achieve the financial targets on-time. Tax saving is crucial when working hard to accomplish our financial goals.
A disorganized tax planning may cause a severe decrease in income, especially when there is no time left of a fiscal year and that may impact your daily economic responsibilities. That is why it is advisable to make an efficient tax saving plan at the start of a financial year so as to incorporate it regularly for the year to avoid undesirable circumstances or any contingencies.
You need to make an ideal plan and get ready for the upcoming challenges this year. In this article, we have discussed 5 best and useful ways to save tax that will help you in preventing expensive mistakes and head towards the right track.
1. Firstly, Drain the All-time Tax Saving Plans
Stop exploring comparatively unusual tax saving options such as donations. Under Section 80C of the Income Tax Act, 1961, one can save tax through deductions via investments up to Rs. 1.5 lakhs. Here are a few choices like fixed deposits for 5 years, Voluntary Provident Fund, Public Provident Fund, Equity Linked Savings Schemes, or National Pension Scheme under Section 80CCD.
Insurance is another way to save tax and one can approach traditional insurance covers or can buy a term insurance plan to take advantage of tax benefits under Section 80C. Also, a family floater policy or health insurance policy for individuals or parents could help in availing tax deductions under Section 80D. If you own a home loan, you will get tax benefits for interest repayment and the principal amount under Section 24 as well as Section 80C. Likewise, remember to claim deductions on tax while making payment for children's tuition fees under Section 80C.
Eventually, draining all the popular choices first will help to decrease your tax burden. Do not forget to bring into play the last few months to meet your savings plans and avoid making any unproductive financial decisions.
2. Additional Tax-saving on Taking a Home Loan Before March
Planning to purchase a dream home and looking for a home loan? If so, take the loan before this March. This will get you a benefit of tax deduction under Section 80EEA up to Rs. 1.5 lakhs for paying the loan interests. Note that the benefit is only for an individual-own property and is beyond the advantage of a tax deduction for up to Rs.2 lakhs for repaying loan interest amount under Section 24. You may take the tax benefit for home loans approved before 31st March. The value and size of the property are important for the eligibility of the benefits. Also, the stamp duty value of the property shall not exceed Rs. 45 lakhs. Subsequently, under Section 80C, a tax deduction advantage of Rs. 1.5 lakhs can be availed for loan principal repayment throughout the year.
Consider taking a home loan before March so as to make the most of Section 80EEA for additional long term tax benefits.
3. Regular Booking of LTCG in Equity Investments
Long-term Capital Gains (LTCG) should not exceed Rs. 1 lakh in equity investments in a fiscal year, i.e., an amount that exceeds this certain threshold limit is liable to pay 10% income tax. One of the smart ways to prevent the 10% tax is to book LTCG regularly up to a range so that the profit shall not cross this limit and buyback of mutual funds and shares on the following day.
If you are investing a huge proportion of your finances on equity investments, this idea of saving tax can make a significant change in your tax responsibility by saving 10% LTCG tax.
4. Claiming of Tax Benefits for Parents’ Medical Expenditure
Buying new health insurance cover for senior citizens at home might be an expensive decision. If your parents who are senior citizens do not have a health cover and you are not eligible to avail tax benefits under Section 80D to that level, consider claiming for a tax deduction benefit of up to Rs.50,000 by paying for the medical expenses of your parents.
Nevertheless, remember to keep all the medical bills and receipts with you always as these would work as a piece of evidence in claiming for the tax deduction benefits.
5. Prevent Financial Liabilities That Lasts Long
Last but not the least, always avoid commodities that ask for very long-lasting obligations whilst you are involved in investments that include tax saving schemes except they are useful to meet your financial goals. For example, many people buy and invest in some traditional insurance policy as the last moment tax-saving step and realize after a couple of months that they no longer want to continue with the plan due to some reason. This is why it makes it difficult to withdraw the policy at that stage because surrendering the policy at the beginning can cause a major financial loss. So, it is advisable to think twice before you make long-term investment commitments.
Therefore, it is important to make sure that your decision could not compromise with your financial achievements while you are in a hurry to invest in tax saving instruments. Some research needs to be done so that you will be able to make a choice and select the best and right instruments. Do not hesitate to contact your financial advisor if you are not clear about your tax-saving approach. A financial advisor will help you find the right stability between your financial goals and tax-saving plans by the hour.
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