You must not wait for the last moment plan your taxes. If you start looking for the best tax saving schemes at the end of the financial year in the last-ditch effort, save taxes, then you are not alone. However, luckily for you, there are several income tax saving options available in the market that can reduce your tax liability, and also help you increase your wealth over the years through these investment decisions.
These schemes commonly referred to as the taxsaving schemes include options like National Pension Scheme, term deposits, Equity Linked Savings Schemes, Public Provident Fund etc. The investments made towards these options can be claimed as tax deductions under provisions of the Income Tax Act. Apart from the obvious tax benefit, you can also use this as an opportunity to create a robust financial portfolio that will help secure your family’s financial wellbeing in the future and also create wealth for you in the process.
It is important to consider tax planning as part of your financial planning to be able to build a suitable portfolio that will help you meet your long-term goals. Investment in tax saving schemes should command the same approach as other investments. Therefore, you must start early so that you have enough time to allocate your funds according to your financial goals. This way, you can save money in taxes and increase the paycheck that you can use to enhance your savings and investment portfolio.
Here is how you can do that.
Minimize Your Tax Liability
Understand the various provisions of the income tax act to see how you can minimize your tax liability and increase your take-home income, outside of the TDS deduction.
Section 80C to 80U of the Income Tax Act, 1961, allows various deductions under the tax saving schemes to help you save taxes legally. Some of its key sections are mentioned below:
- Section 80C: You can claim deductions up to Rs. 1.5L for premiums paid towards life insurance policies, fixed deposits, Public Provident Fund, and more.
- Section 80CCD: You are eligible to claim deductions up to Rs. 1.5L for contributions made towards pension fund regulated by the Pension Fund Regulatory and Development Authority.
- Section 80D: You can claim tax deductions up to Rs. 25,000 for an individual or Rs. 30,000 for senior citizens for the payment of health insurance premiums.
- Section 80TTA: You are eligible to claim tax deductions up to Rs. 10,000 on the interest earned on your savings account.
- Section 80CCF: If you have invested in long term infrastructure bonds of the government, then you can claim tax deductions up to Rs. 20,000 as per section 80CCF.
It is crucial that you understand these options to choose the right income tax saving instruments.
Long Term Financial Security
Tax saving schemes are not just about saving taxes but also about helping you meet your future financial goals. By choosing the right schemes, you can safeguard your family against any financial turmoil in your absence and also generate wealth that will act as your support system after your retirement.
Many life insurance products are effective tax saving options under Section 80C and section 10(10D). These provisions not only help you save taxes on the premium, but even the maturity benefit is tax-free.
Allow You to Save for the Future
Avoid making any last-minute investments in tax saving schemes. This is the quickest way to make wrong financial decisions that will cost you more in the long run. The best way here is to plan your future goals and planning your tax investment early in the year. This will help you assess your options and financial objectives open-mindedly and allow you to make wise decisions. Making an early investment will give your money time to grow and become a considerable corpus that you can rely on once your regular income stops.
Diversify Your Income Portfolio
As they say, never place all your eggs in one basket, especially when you are defining your financial portfolio. There are many taxsaving schemes out there that can help you build a highly customized investment portfolio, designed specially to meet your financial needs. However, make sure that you diversify your investments as per your risk appetite as well as financial objectives. For instance, Mutual Funds offer the shortest lock-in period and the best returns. Therefore, they can be a veritable investment if you are looking for short-term gains. At the same time, investments made in government schemes are long-term instruments that lead to wealth creation through higher returns.
Now that you are prepared to invest in tax saving schemes, it is advisable to educate yourself about the products and their benefits before investing. For instance, online term plans offered by reputable insurers like Max Life Insurance, allow you to make an informed decision by reviewing, comparing, and selecting policies that provide maximum benefits at cost-effective premium. These plans also allow you to make a quick and hassle-free purchase.