BREAKING NEWS

Advertisement

Weekend

Updated on: Sunday, May 30, 2021, 08:03 AM IST

Money Matters: Smart tax-saving tips you should know

There are several options that can help you safeguard your income and save taxes legally so that you can make your money work for you
Advertisement

When you start earning enough to pay taxes, the first thought that comes to your mind is how to reduce your tax burden to the minimum. If you are a first-time taxpayer, taxes can overburden you and leave you at a loss for planning monthly expenditure. Here’s a list of some tax-saving options but remember that these are applicable if you pay taxes under the old regime only. Many of the benefits will not be available if you have opted to pay taxes under the new regime.

Investments under Section 80C

This section of the Income Tax Act 1961 allows a maximum benefit of Rs 1.5 lakh per annum and you can make investments in five-year tax saving fixed deposits, National Pension System, Term Life insurance premium, Public Provident Fund, National Savings Certificates, home loan repayment (the part of EMI that goes towards repaying the principal amount only) and mutual funds under ELSS category are all eligible investments for deduction.

Under Section 80CCD (1b), an additional deduction of Rs 50,000 on investments in NPS can be claimed above the Rs 1.5-lakh limit.

Ravi Singhal, vice-chairman, GCL Securities Limited, says, “One should also consider utilising maximum limit under 80CCD to save Rs 15,000 by investing in NPS or Atal Pension Yojna (APY). There is a myth that NPS gives very low returns as compared to other available products, which is wrong. You can compare the performance of all funds under the category and can choose the fund.”

“Fifty percent of your funds are deployed in these market-linked products and 50% in debt instruments like government bonds. The ratio is changed by fund manager every year and 100% of your funds are parked in debt market till retirement,” he says.

Singhal adds that the products under 80CCD are pension funds only, so there are some restrictions on withdrawal of funds. “You must consider it before investing.”

Other options

It is important to remember that you must take a health insurance as soon as you start earning. While it is a no-brainer to stress the importance of health insurance, under Section 80D, the premium paid for medical insurance for self, spouse and children as well as for parents is exempt up to Rs 25,000 and Rs 50,000 if your parents are above 60.

Under Section 80E of the Income Tax Act, any amount of interest paid on education loan for self, spouse or children will be exempt from income tax for eight years only.

If you have donated to any government-approved charities, social and government organizations, you can claim a deduction under Section 80G up to a maximum of 10% of your gross annual income. In case you have financially aided any NGO or government organisation in the pandemic, you can ask for an 80G certificate as proof. Under Section 80GG, you can claim a deduction for house rent, only if you are not being paid house rent allowance (HRA) and you do not own any property. The deduction is the lesser of the rent paid minus 10% of total income, 25% of total income or Rs 5,000 per month.

Choose to save

For first-time salaried youngsters, it is likely that the monthly savings is less. However, investment options are available even if you can start small.

Zafar Imam, CEO of FinShell, says, “Investment is a habit that must be inculcated at an early stage of earning. Even if someone has a very small saving at the end of the month, one must look at various investment options. Investments in Digital gold, mutual fund and the stock market can be started with as low as Rs 100. One can take a lower risk recurring deposit with a bank. ULIP offered by insurance companies are good investment options to start with Rs 500-1,000 a month."

A key point to note is that there are several tax-saving instruments that are available. Like one size does not fit all, it is important to understand each instrument especially in terms of its risk level, liquidity, lock-in period and returns. So, when you pick an investment avenue to save tax, keep all this in mind so that you can make the most of your money.

Home loan

When you start earning, one of the best ways to save taxes is to invest in a home and a home loan will give you several tax benefits. While this may seem like a task initially, do plan for it sooner than later. Other perks include saving house rents and property appreciation in the long term. You can get an additional tax benefit of Rs 1.5 lakh under Section 80EEA. Under Section 24, you can claim an interest deduction of up to Rs 2 lakh on home loan interest if you or any family member is living in the house. You can also claim full interest, if house has been given on rent.

Current Tax Slabs

Advertisement

(To receive our E-paper on whatsapp daily, please click here. We permit sharing of the paper's PDF on WhatsApp and other social media platforms.)

Published on: Sunday, May 30, 2021, 08:03 AM IST
Advertisement
Advertisement
Advertisement
Advertisement
Advertisement