In India, maximizing tax savings is an integral part of financial planning. While you may include different financial instruments in your portfolio that help save your earnings and accumulate significant wealth over a period, you must also incorporate instruments that can help you reduce your tax liability.
In other words, it is advisable that you keep tax saving as one of the primary goals while planning your investments, regardless of your age or income. To maximize your tax savings through legal avenues, it is prudent that you start with your investment planning early on in a given financial year. Every year, as the government announces the Union Budget, you can identify which instruments will allow you to avail of maximal tax savings, as per different sections under the Income Tax Act, 1961.
Here is a breakdown of the various section under the Act that can help ensure maximal tax savings while providing long-term financial planning benefits –
1. Section 80C
Section 80C is one of the most prominent tax-saving sections under the Act. Section 80C allows taxpayers to reduce their overall income tax liability by up to Rs 1.5 lakh, through various financial instruments including –
2. Section 80CCD
Under this section, tax-saving benefits can be availed through investments into pension schemes sponsored by the government of India, primarily the National Pension Scheme (NPS). Section 80CCD enables you to save up to Rs 50,000 on your NPS contributions additionally and claim tax deductions of up to Rs 2 lakhs under both Section 80C and Section 80CCD.
3. Section 80D
Tax saving benefits under Section 80D pertain to the deductions you can avail on the premiums paid towards health insurance coverage. Having a health cover is not only essential in today’s day and age; it is also one of the ways you can maximize your tax saving. You can save up to Rs. 25,000 on the premium paid towards the health cover for self, spouse, and children. You can save an additional tax saving benefit of up Rs 25,000 by purchasing health cover for your parents (below 60 years of age) and up to Rs 50,000 (if your parents age above 60 years of age).
Tax saving benefits can also be availed through the following section –
a. Section 80G – On charitable donations made towards organizations, charitable funds, and government aids.
b. Section 80E – On the repayment of interest of education loans taken for self, spouse, or children
c. Section 80TTL (or 80TTA) – On interest earned on “Income from Other Sources,” up to Rs. 10,000
d. Section 80TTB – On interest earned by senior citizens on fixed deposits, post office savings, savings accounts, recurring deposit, and term deposit, up to Rs. 50,000