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How to Save Income Tax in FY 2020-21?

In this world, nothing is certain but death: Benjamin Franklin.

#Income-Tax
2:59 min read

Two months and a couple of days are left to do tax savings this year. Have you started investing already? Are you wondering about the benefits of these investments after tax saving? Though, a certain tax outgo is unavoidable, here are some ways through which you can lower your tax outgo and meet your various financial goals.

By Buying Life Insurance Policy

You work hard to secure the future of your loved ones, however, any unfortunate event can jeopardize their future. Buy a life insurance policy to give financial protection to your family that will take care of them in your absence. Also, the premiums paid on life insurance are tax-exempt upto Rs 1.50 lakh, as per Section 80C.

Further, there are various types of life insurance plans, like endowment plans, term insurance, etc. Then there are customized plans for your life stage needs such as a child insurance plan to secure the future of your child and curtail your tax outgo. So, irrespective of the type of plan you choose, the following tax benefits will be available:

1. Insurance premium is tax-exempt up to Rs 1.5 lakh under Section 80C

2. Insurance payout is eligible to be tax-exempt under Section 10(10D)

By Making Investments Towards Long-Term Goals

Equity Linked Savings Scheme or ELSS, serves the dual purpose - Tax Save + Wealth Creation. These are mutual funds that primarily invest in equities and help in meeting long-term goals, like a child’s education, marriage, etc. In terms of taxation, ELSS comes under the EEE category. It means, it is not just the investment amount, even dividend income and maturity proceedings are tax-exempt.

Then there are Unit-Linked Insurance Plans (ULIPs), which are a reliable wealth creation solution over the long run, keeping in mind the returns, protection and tax benefits available with them. The premium amount is invested in a mix of equity and debt funds in a different proposition, allowing inter-fund transfer through switches, which is also tax-exempt. Further, the tax benefit is available on ULIP payout along with the premium. 

Some of the Tax-Saving Instruments available under Section 80C

 

Name of the Investment

Minimum Investment Amount (in Rs.)

Lock-in years

Risk Profile

Public Provident Fund (PPF)

500

5

Low

ELSS

500

3

High

National Savings Certificate

100

5

Low

National Pension Scheme

6,000 (total contribution in the year)

Till the age of 60

Medium

Senior Citizen Saving Scheme

1,000

5

Medium

Unit-Linked Insurance Plan

25,000

10-15 years

Medium


By Insuring You and Your Loved One’s Health

A single hospitalization is enough to disturb your monthly budget, so buy a health insurance policy and get protection from rising medical costs. As per Section 80D, premiums paid towards health insurance bought for self, spouse, and dependent kids get a tax deduction up to Rs 25,000. By paying the premium towards the policies of your senior citizen's parents, you can get a tax deduction up to Rs 30,000. This tax limit includes the expenses of Rs 5,000 paid towards preventive health checkups.

A quick look at the tax benefits available on health insurance policies:

Scenarios

Self, Spouse and Kids

Parents (whether dependent or not)

Total Tax Deduction

All the insured members are below 60

Rs 25,000

Rs 25,000

Rs 50,000

Except parents, the other insured members are below 60

Rs 25,000

Rs 50,000

Rs 75,000

All family members are above 60

Rs 50,000

Rs 50,000

Rs 1,00,000


By Financing Higher Education

Under Section 80E, the interests paid towards the loan taken for higher education are tax-exempt. The tax benefit is offered for a maximum of eight years or till the time; the interest has been completely paid, whichever is earlier.

By Investing in a Property

Under Section 80EEA, tax benefits are available for first time home buyers. The maximum deduction is up to Rs 1,50,000 p.a. on interest which can be availed, provided the following conditions are fulfilled:

1. The said property should be the only one property in the individual's name

2. The house value must be below Rs 45 lakh

By purchasing electric vehicle

Under Section 80EEB, tax benefit are is available on interest payable on loan taken for the purpose of purchase of an electric vehicle. The maximum deduction is up to Rs 1,50,000 p.a. on interest.

In addition to the above, other ways through which you can save tax are:

1. The submission of rent receipts can help you get tax deduction under Section 10(13A)

2. Donations (money only) made towards certain organization get tax relief under Section 80G

3Interest earned on saving bank accounts is tax deductible upto Rs 10,000 under Section 80TTA for individual below age of 60

4. Interest earned on fixed deposit and saving bank account is tax deduction upto Rs 50,000 under section 80TTB for senior citizens.

Conclusion:

Your best way to save on taxes is to ensure that you continue to make investments throughout the year which are supported by a well-analyzed plan. Otherwise, you might not be able to take all the advantages that you could.

However, never purchase any insurance or investment product just to save tax. It is fine to pay tax in case you don’t find the right investment product, but never invest just to save taxes!

Disclaimer: Tax benefits are in accordance to prevailing provisions of section and subject to fulfillment of conditions mentioned therein. Policyholders are advised to seek tax consultants view for more clarity.

ARN:-Aug/Bg/21

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