That season of the
year has come when some people are rushing around to file IT returns and are
busy searching ways to save their precious money from getting axed by
government implemented taxes. Each one is trying to search the best tax savings
plan to save their hard earned money. Many
of us may be confused with terms like Section 80C and 80D (of the Income Tax
Act). Some work out tax planning in the last couple of months of the financial
year and some even at the right end.
Income Tax Act allows
certain deductions that an individual can claim to reduce the gross total
income and thereby reducing tax liability. The benefits of tax savings plan are
largely confined to section 80C of the income tax act. According to Section 80
C, an amount equal to the investment that you make in certain specified financial
instruments or an expense that you incur up to a maximum of Rs 1.5 lakh in a
financial year reduces your GTI by the same amount. The benefit of Rs 1.5 lakh
on tax saving instruments is available to everyone, irrespective of his or her
income levels. Most common investments under section 80C on five basic
parameters are returns, safety, flexibility, liquidity and taxability. Every
investment has its pros and cons.
Some of the section
80C instruments like life insurance policy come with annual commitment to keep
paying the premiums. In addition to section 80C, there are other avenues too
that help to reduce tax such as health premium of Mediclaim under section 80D,
interest paid on home loan or education loan under section 24 and section 80E
respectively.
Here are options that
can help you build tax saving plans and reduce the amount of tax to be paid to
the government.
Equity Linked Saving Scheme (ELSS)
ELSS refers to
equity-oriented mutual fund schemes that invest in a diversified portfolio of
Indian stocks. ELSS schemes can be purchased online and come with a lock-in
period of 3 years.
Public Provident Fund (PPF)
PPF is another
preferred mode for your tax saving plan. You invest in it and you get a deduction
on your income. Besides, the interest you earn on it is also tax-free. Since it
is a scheme run by the Government of India, it gives you security.
House property
In case you have
taken loan to buy property, you’re eligible to get tax deduction on the
interest that you pay, to an unlimited extent under Section 24(b) and principal
amount to the extent of 2 Lakh under Section 80C.
Life Insurance and Pension Plans
Life insurance and
other retirement or pension plans with or without life cover are one of the
best options you should consider for your tax saving plan. The overall
exemption available under Section 80C, 80CCC, 80CCD is Rs 1.5 lakh per annum.
The good news is that a relief is provided in the form of tax exemption (on
expenditure on health care) being raised from Rs 15,000 to
Rs 20, 000 and Rs 30,000 in case of a senior citizen thereby improving the
affordability, accessibility and awareness of health insurance.
Donations for specified Donations
When you make
donations for specified entities you’re eligible for deduction under section
80G of up to 50% / 100%, depending upon the institution to which the donations
are made.
Interest payment towards Educational loan
If you have taken a
loan from any bank or approved financial institution for higher studies for
yourself or any immediate family member, then the entire interest payable is
eligible for deduction under section 80E. The right way to plan saving your tax
deduction would be in the start of the financial year as it helps to co-relate
each tax saver to one’s goal. Your Best tax saving plan
should be in tandem with overall financial planning which caters to meeting
other goals in life as well.
Source:http://www.articles.howto-tips.com/HowTo-Article-Directory/how-plan-saving-money-tax-deduction