It is that time of the year. The finance team sends you a dreaded email asking you to submit proof of investment declarations you have made towards saving on taxes. If you fail to do so, you will end up seeing a huge deduction towards income tax in your salary, in the month of February and March.
So, what do you do to avoid this? Just by keeping your eyes and ears open, you might stumble upon a lot of avenues to save taxes. January to March, popularly called the “JFM” period, is a time when insurance companies and financial services companies such as mutual funds spend heavily on marketing and advertising. Did you wonder why? It is because if you invest in them, you can save on your taxes by availing deductions. There are many ways to save yourself from paying huge taxes. A few are as below:
1. 80C investments: You can invest up to a maximum of 1.5 Lakhs, and it will be completely deducted from your taxable income. The investments can be in Public Provident Fund (PPF) which give you an 8.8% interest on savings in the PPF account. You could also save by paying the insurance premium for your dependents (parents, children, etc.) or you.
You can also invest in equity linked saving schemes. Your money would be invested in the equity market, and it will be locked in for three years. In the interim, some ELSS funds give dividends, and these are also tax-free.
The premiums paid under pension plans are eligible for deduction. If you have a home loan, the principal amount is also exempt from tax up to a maximum of Rs. 1.5 Lakhs. Do not forget to claim exemption on taxes from the interest you pay on your housing loan, to a maximum of Rs. 2 Lakh. The tuition fees that you pay for your children are also eligible for an 80C deduction.
2. Medical Insurance and Medical treatment of certain illnesses:
A deduction of up to Rs. 15,000 can be claimed for the medical insurance of your spouse and you (and your dependent children) under section 80D. Additional deduction of Rs. 15,000 can be claimed if your parents are less than 60 years and Rs. 20000 if your parents are more than 60 years of age. You can apply for health insurance policy online.
A deduction of Rs. 40,000 for the treatment of certain illnesses can be claimed under section 80DDB.
3. Education loan:
Are you paying interest on an education loan taken for you, your spouse, your child or for a child who has you as her/ his legal guardian? If yes, you can claim a deduction in taxable income under section 80E.
4. Buying your first home: If you are buying your first home and you have availed a loan of up to Rs. 35 Lakh, you can claim an additional deduction of up to Rs. 50,000 over and above the 2 Lakh on the interest paid and the Rs. 1.5 Lakh on the principal paid for this house.
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5. Staying on rent: Do you stay in a rented property or apartment? Then the least of (rent – 10% of income, house rent allowance, 25% of your total income) can be deducted from your taxable income.
6. Donations to charitable institutions and political parties: Donations made to charitable institutions and contribution given to political parties can be deducted completely from taxable income under section 80G and section 80GGC respectively.
Every organization also has its set of deductions which you can understand by going through your company policies and discussing it further with your HR team or finance team.
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However, the golden rule is to understand these avenues well in advance and start saving taxes early in the financial year i.e. from April onwards. If you wait for Jan or Feb, you might end up paying unnecessary tax as you may not have the savings in place to invest, even if you understand the tax saving avenues and instruments.
If you are reading this article and find it relevant, you may already be late with your tax planning and related investments. Follow the quick steps above and save as much tax as you can.