Tax Saving – Ways and Means

It is the duty of every citizen of the country to pay tax to the Government. The amount collected is used to fund various activities such as infrastructural development, giving an impetus to the rural economy, and providing various welfare schemes, among others.

The Income Tax Act, 1961 provides numerous exemptions and deductions to reduce the tax liability of taxpayers. By availing of such deductions, you may reduce your taxable income by a great extent, thereby saving a significant amount of money.

Following are four common ways for tax-saving in the financial year 2018-19.

Invest in health insurance

A health insurance policy not only provides the much-needed financial protection in case of a medical emergency, but also helps you save income tax. You may claim medical insurance tax benefit on the premiums paid towards the policy. Under Section 80D, medical insurance benefits may be availed of up to a limit of INR 25,000. This policy may be purchased for yourself, spouse, or your dependent children.

The good news is that senior citizens may enjoy a higher mediclaim tax benefit. Earlier, the limit for senior citizens was capped at INR 30,000. According to the latest Union Budget, announced by Finance Minister ArunJaitley, this limit is raised to INR 50,000. This medical insurance tax benefit is allowed for preventive health check-up as well as for any other medical expenditure. Therefore, investing in a health plan protects you from rising medical inflation, gives you peace of mind, and offers health insurance tax benefits to you.

Deposit your money in financial vehicles

There are numerous financial vehicles that you may invest in so as to reap benefits at a future date. Some of these financial instruments offer tax benefits. A few common tax-saving options include Public Provident Fund (PPF), Unit-Linked Investment Plans (ULIPs), tax-saving fixed deposits (with a 5-year lock-in period), Equity-Linked Saving Schemes (ELSS), post office time deposits, and National Saving Certificate (NSC) among others. You may avail of tax benefits on such investments up to a limit of INR 1.5 lakh under Section 80C.

Avail of interest benefit on home loan and educational loan

Another way of reducing your tax liability is by availing of tax benefits on home loan. You may seek a maximum of up to INR 2 lakh on the interest towards your home loan under Section 24. You may also avail of deduction on the principal amount paid up to a limit of INR 1.5 lakh under Section 80C. In addition, you may claim a deduction of stamp duty and registration charges in the year in which these expenses were paid.

In case you have taken an education loan for yourself, spouse, dependent children, or any individual to whom you are a legal guardian, you may seek income tax benefit on the interest component. This deduction is allowed under Section 80E. It is important to note that there is no upper limit for this deduction.

Seek tax relief on donations

You may get tax relief benefits for any donation made towards charity or a philanthropic purpose under Section 80G. However, donations made are exempted up to a certain percentage based on the purpose of donation. While some donations are totally exempt from tax, some offer 50% as deduction.

You may also lower your tax liability through numerous other methods, such as claiming tax benefit on house rent allowance (HRA), asking for food coupons, and seeking deduction on leave travel allowance (LTA). By following these smart tips, you may enjoy tax relief up to a certain extent, save more, and have more money at your disposal.

Open a Demat Account to invest in Tax-saving Instruments at Axis Direct.