Tax savings is one of the most important factors you need to consider while preparing your investment plan. Regardless of how much you earn, you should prepare an investment plan that lets you not only save your earnings but also build up a significant corpus over a period of time.
It is best to begin investing when you are young, since your financial responsibilities are lesser as compared to when you are 10 years older. However, regardless of the stage or age you are at while investing, tax savings should always be a goal.
Another goal you should consider achieving early on in life is buying a term plan to ensure your family’s continued financial security even when you are no longer around. For instance, the iSelect Star Term Plan, offered by Canara HSBC Oriental Bank of Commerce Life Insurance not only assures a high sum assured amount but also ensures flexibility in premium payment as well as in payouts.
In order to avail the highest amount of tax savings, it is important to make your investment plan early on in the financial year and then stick to it. The Union Budget, announced at the beginning of each year, is when investors can find out which instruments allow for the highest amount of tax savings. There are several sections under the Income Tax Act, 1961 which allow for tax savings through a range of varied instruments. Read on to learn more about the investment plan you can make this year that will ensure you can save taxes, and also how much you can save as tax.
- Section 80C: Section 80C, over the years, has been the most prominent section under which investors can claim tax savings. In the Union Budget 2020-21, the benefits under Section 80C were retained with the maximum tax exemption continuing at Rs. 1.5 lakh annually. To avail tax exemptions under Section 80C, you can invest in a range of instruments including the Public Provident Fund (PPF), Employee Provident Fund (EPF), 5 year post office or bank savings account, National Savings Certificate (NSC), children’s tuition fees, Equity Linked Savings Schemes (ELSS), premiums paid on life insurance policies, National Pension System (NPS) and even the deposits made to a Sukanya Samriddhi Account.
- Section 80CCD: Tax savings under Section 80CCD can be availed by investing in pension schemes run by the government, such as the National Pension Scheme (NPS). Under this section, the maximum tax deduction allowed is up to Rs. 50,000. This should be an essential part of your investment plan, owing to the significant pension fund you can earn.
- Section 80D: This section of the Income Tax Act, 1961, allows for tax benefits through payments made on health insurance. As more and more people invest in health insurance in the wake of rising costs of healthcare treatment, the government has allowed them to avail tax benefits through this as well. You can save up to Rs. 25,000 on purchase of health insurance policies for yourself, as well as your spouse, parents and children.
- Section 80G: Tax deductions can also be availed on the charitable donations made towards charitable funds, organisations and any other kind of government aid. However, there are certain limits placed on this kind of donation. You cannot donate more than Rs. 2,000 in cash, and the total amount donated cannot be more than 10% of your gross annual income.
- Section 80E: Under Section 80E, it is possible to claim exemptions on the repayment of interest on any educational loans you may have taken. This is applicable on any loans taken towards education for the self, spouse or even the children.
- Section 80TTL (or 80TTA): This section of the Income Tax Act, 1961, pertains to the interest amount you earn on your savings bank account. This interest earned is noted under “Income from Other Sources”. The maximum limit, however, for tax savings under Section 80TTL is capped at Rs. 10,000.
- Section 80TTB: The Section 80TTB of the Income Tax Act, 1961, is applicable only for senior citizens. Tax deductions under this section can only be availed on the interest earned by senior citizens from their fixed deposits, savings accounts, post office savings, term deposit, and recurring deposit, among others. Under Section 80TTB, the maximum tax savings allowed is up to Rs. 50,000.
Under these different sections of the Income Tax Act, 1961, it is possible to save quite a significant sum through the various tax benefits available to investors. The best way to save on taxes is to invest in instruments that also provide other benefits. For instance, you can avail the iSelect Term Plan, offered by Canara HSBC Oriental Bank of Commerce Life Insurance, which not only gives you coverage along with ensuring your dependents’ financial security; but also helps in tax savings.