As the calendar inches closer to March, the ultimate worry plaguing every taxpayer’s mind is how to reduce their tax liability. While evasion of tax is a serious offense, being tactical about tax planning to save on tax payments is one of the foundational principles of investing. If you are on the lookout for the best tax-saving strategies to lessen your tax burden, here are 5 to watch out for:
1 – Diversifying investments in tax-saving instruments is a necessity
Investing in tax-saving products is a smart strategy to save on taxes. But you should remember that every tax-saving product has a lock-in clause, making them unsuitable in case of short-term financial goals.
Make sure to invest in instruments such as PPF and EPF as missing out on equities means that your overall corpus suffers. Your asset allocation should help you reduce your tax liability and also align with your financial goals.
However, always make sure you are careful about picking your investment options and only pick those that match your risk profile and specific requirements about safety, liquidity, and returns.
2 – Increase your Section 80C savings
Section 80C is a powerful weapon for taxpayers under the Incom Tax Act for efficient tax planning. Thanks to the provisions of this section, taxpayers can save up to INR 1.5 lakh. Deduction under this section can be enjoyed through investing in instruments such as ELSS schemes, PPF, EPF, National Saving Certificate, Sukanya Samriddhi Yojana, and SCSS. Even the premium for insurance schemes can be claimed under Section 80C. In the event of the insured person’s demise, the premium amount repaid to the beneficiaries is tax-exempt provided the amount is less than INR 1.5 lakh.
Additionally, home loan installments, stamp duty paid for registration, and property registration fees can also be claimed as expenses under Section 80C and claim deduction from your taxable income.
3 – Don’t forget Section 87A
Apart from Section 80C, Section 87A is another great way to reduce your tax liability for income up to INR 3.5 lakh. If a resident individual’s total taxable income is up to INR 3.5 lakhs, he is entitled to a tax benefit of INR 2500 or the actual tax payable, whichever is lower. You can claim the benefits under Section 80C, 80D, 80CCD (1b), and other relevant sections of the Income Tax Act and then use the rebate under Section 87A to reduce your liability further.
4 – Opt for an education loan
If you are planning to go abroad for a higher degree or have kids who want to go abroad for higher studies, don’t spend your savings to pay for it. Instead, avail of an education loan to meet the expenses.
Remember that It is also a tax-saving instrument. Interest repayments for an educational loan are eligible for deduction under section 80E of the Income Tax Act, 1961. There is no limit on the amount of interest you can claim as a deduction.
5 – Take a housing loan
If you want to buy your dream house, opting for a home loan is a better option than spending your hard-earned savings. A housing loan also provides tax relief, making it a smart choice for tackling your tax liability. At present, you can claim the following under the Income Tax Act:
The principal amount of the loan up to INR 1.5 lakh can be claimed as a deduction under Section 80C
The interest up to INR 2 lakh can be claimed as an exemption under Section 24(b)
In case you have bought a house under any affordable housing scheme and the stamp duty value of the home is under INR 45 lakhs, you can claim an additional deduction of up to Rs.1.5 lakhs under Section 80EEA
Saving on your taxes is not rocket science. A little bit of intelligent planning and making wise investment choices can help you plan your tax effectively. If you need professional guidance, don’t hesitate to reach out to professionals. Don’t wait until next year to apply these strategies. Get a headstart right away so that you can sail through the tax season next year without a frown line on your forehead.