March is the month when school kids do last-minute preparation before their final exams and when adults do last-minute tax planning. A lot of people only remember about their taxes when the deadline is so near that they can practically see it. If you belong to this group, don’t despair. There is still some time before the month-end deadline.
Here are some ways for you to reduce your taxable income.
- Life insurance
These days, life insurance is an absolute necessity. In case of you aren’t around, a life insurance policy can help your family financially. And the best part is: a life insurance policy offers yearly tax benefits too. If you have a life insurance policy, you can avail a tax deduction of Rs 1.5 lakh under Section 80C of the Income Tax Act.
- Public Provident Fund
Public Provident Fund (PPF) has been the go-to investment option for many people over the years. This is because of the multiple benefits it offers such as high safety of invested capital, loan options, low maintenance costs and tax benefits.
Yes, PPF is a savings vehicle that doubles up as a tax-saving investment option. It is very easy to open a PPF account with a post office or a bank. All you require is Rs 100 to start a PPF account. The deposits you make in a PPF account are eligible for a deduction of up to Rs 1.5 lakh under Section 80C. In addition, the entire amount at maturity is non-taxable. This includes the interest earned during the investment period. Finally, PPF investments are excluded from wealth tax.
Want to earn high returns and save tax at the same time? Here’s the perfect investment vehicle for you: Equity Linked Saving Scheme (ELSS). As the name suggests, ELSS is a mutual fund that is equity-based. In other words, the returns you earn on this fund are linked to the equity market. This might put off some people from investing in ELSS. However, through careful and regular investments through Systematic Investment Plans (SIPs), it is possible to minimize this risk.
Now, coming to tax saving, ELSS is very popular among investors because of its tax benefits. You can claim a deduction of Rs 1.5 lakh under Section 80C for investments in ELSS. In addition, the returns on ELSS schemes are tax free.
- Health insurance
Section 80C offers many options to avail tax deductions. However, that is not the only route. If you have a medical insurance policy, you can avail a deduction of Rs 25,000 per year under Section 80D. This is applicable for insurance of you, your spouse and dependent children. In case you or your spouse is above the age of 60, the deduction is Rs 30,000.
And recently the Union Budget 2018 proposed to increase the deduction limit for senior citizens from Rs 30,000 to Rs 50,000.
- Education loan
Alright, you took an educational loan to put yourself through college. You have a degree and you are out in the real world.
Good news: After three/four years of college, you can quote Shakespeare even in your sleep.
Bad news: You have to repay your education loan.
Best news: You can claim a tax deduction on your loan payments.
The interest paid on the loan can be deducted from your total income under Section 80E of the Income Tax Act. There is no limit on the maximum amount deducted.
- National pension system
If you have invested in the NPS for your retirement, you can claim tax benefits under Section 80C and 80CCD. The total deduction you can avail under this scheme is Rs 2 lakh. You are eligible for tax deduction for your contribution and also your employer’s contributions.
Did you make any charitable contributions during the year? Guess what: you can be eligible for a tax exemption. The government encourages people to make donations to noble causes by allowing tax deductions on charitable donations. The income tax department provides a list of charitable institutions and trusts that qualify for tax deductions. So in case you have donated, you can avail deductions under Sections 80G, 80GGA and 80GGC. Don’t forget to furnish a stamped receipt that is issued by the trust as proof of payment.
The clock may be ticking but that doesn’t mean that time is up. You can utilise any of the above options to avail tax benefits this year. And remember, start your tax planning early next year to avoid the last minute rush.