With the financial year ending, individuals are now looking out for the best options to reduce their tax liability. Many often make investments in certain instruments to reduce taxes, without having an adequate knowledge of the various options available.
Following are five most common income tax saving tips.
- Make total use of Section 80C
There are numerous deductions available under Section 80C of the Income Tax Act, 1961. You may invest in Employee Provident (EPF) or Voluntary Provident Fund (VPF). You may also consider the long-term investment option of Public Provident Fund (PPF). Further, you may avail of income tax deductions on National Savings Certificate (NSC) or 5-year post office fixed deposits. Equity-Linked Savings Scheme (ELSS) and Unit- Linked Insurance Plans (ULIPs) are other attractive investment options that you may consider. You may avail of a maximum of INR 1.5 lakh under this section for a particular financial year.
- Invest in term plans
A term plan is a type of life cover that offers coverage for a fixed period. In case of an unfortunate event of death during this period, the policyholder’s nominee is entitled to receive the death benefit. Term plans are an excellent income tax saving instrument. The premiums payable towards the term insurance policy is eligible for tax deductions under Section 80C. This includes premiums paid for the insured’s spouse as well as dependent children. The policyholder’s loved ones may also avail of tax deduction on the death benefit amount under Section 10(10D).
- Enjoy tax benefits on the principal amount of your home loan
In case you wish to buy your dream home, you may do so now. According to the Income Tax Act, you may enjoy tax benefit on both the principal amount and the interest component of your home loan. Section 80C offers a tax deduction on the repayment of the principal amount of a home loan, up to a maximum limit of INR 1.5 lakh. Moreover, you may claim a tax benefit on the interest paid under Section 24.
- Save tax through education loan
Besides a home loan, you may also save tax by borrowing an education loan either for yourself, spouse, dependent children, or individuals who you are a legal guardian of. Under Section 80E, you may claim a tax benefit on the interest paid on your loan. The good news is that there is no upper limit for this component.
- Invest in a medical insurance policy
Purchasing a mediclaim policy not only provides the much-needed financial coverage in case of medical emergencies but also offers tax benefit. You may claim a maximum of up to INR 25,000 on the premiums paid, which may be extended to INR 30,000 in case you and your spouse are above 60 years of age. You may also cover your parents with this type of insurance and enjoy additional tax benefit of up to INR 25,000, which may be extended to INR 30,000 if they are senior citizens.
Besides the aforementioned tips, there are numerous ` options available in the market. You may explore tax benefits related to leave allowance, donations made towards charity, house rent allowance, income from gratuity, meal bills, and medical bills, among many others. By doing so, you may reduce your tax liability largely.