Most of the schools don’t have a subject dedicated to doing your taxes, let alone on tax savings. If you are not a commerce student, you wouldn’t be thinking about taxation till you get your first pay-cheque. By that time, most of us still haven’t figured out a tax saving mechanism.
There is a difference between tax planning and tax evasion. The latter is illegal, and the former is the government’s way of helping you reduce your tax burden. All included, there are a few things you can do to reduce or manage your tax burden – invest, borrow, save, or donate.
So, in line with the Assessment Year 2020, here are some tax-saving tips you can use to manage your taxes.
The NPS has been designed money pooling scheme to help individuals save for their retirement and invest at the same time. Under the NPS, you can park your capital in the Tier I (Pension Account) or Tier II (Liquidity Account) account. The primary difference between the two is in terms of withdrawal limits.
Once you put your money in the NPS, it is invested in the market amid asset classes like Equities, Corporate Debt, or Government Securities. You can choose to take the automatic investment route under which an assigned asset manager will make the investments on your behalf. You can change the manager later if you prefer. The other is the active investment route, which allows you to select the securities you want to invest in, with a maximum portfolio allocation limit of 50% on equities.
Under Section 80CCD, you can claim a deduction of as much as ₹50,000 in a year with your savings or investment in the NPS.
You should not take a home loan with the sole purpose of getting a deduction or an exemption. Homeownership is a long-term decision and should be taken in line with your long-term goals.
If you have taken a home loan or are in the process of taking one, you should be aware that you can claim a good amount of deductions and exemptions. You can claim an exemption of up to ₹50,000 under Section 80EE.
You should also know that you can claim a deduction of up to ₹200,000 in line with the interest on your home loan, assuming the interest on your home loan is deductible. This can be done under Section 24 of the Income Tax Act with the caveat that you should not be receiving a rental income from the same home.
Savings Accounts are generally not considered great avenues for investing due to negligible interest rates. But, under the Income Tax Act Section 80TTA, any interest earned up to ₹10,000 on a savings account is exempted from tax.
Senior citizens can get an exemption of up to ₹50,000 on the interest earned on savings accounts as well as fixed deposits, under the Section 80TTB.
Another way to saving is by parking your money by getting the National Savings Certificate. This is a fixed income instrument issued by the government with a tenure of 5 years. You can claim as much as ₹150,000 as rebate under 80C using the NSC.
You can take this loan for yourself, your spouse, or your child. The loan should be dedicated and categorized as an education loan. Under Section 80E of the Income Tax Act, you might be eligible for claimed deductions of up to ₹150,000. That said, this deduction is available only to individuals, not HUFs.
If you are in the middle of your career or your spouse is planning to join the workforce after a break, you can plan to take an education loan to catalyze career growth plus save tax. Besides the loans, some education savings schemes might also be eligible for deductions.
These schemes are grouped under the category of Market Linked Instruments. They include Equity Linked Saving Schemes, Unit Linked Insurance Plan, and Mutual Funds.
The tax treatment on ELSS and ULIPs is pretty straightforward. As far as you keep your premiums beneath ₹150,000 per annum with a 3-year lock-in period, you will not be paying taxes on them. Many market-linked instruments serve as great tax saving avenues since they often help you in saving capital gains taxes. Fixed deposits and other instruments of similar nature are generally taxed as soon as they attain maturity.
These tax deductions have been listed after active research. Yet, your CA or wealth manager would be better equipped to help you plan your taxes. You should be aware that the Union Budget 2020 introduced a new tax slab along. Along with that several deductions jhas been cancelled. You can use various government sites to check the new slab rates.