The financial year ending on 31st March 2020 is fast coming to a close, and it’s time for individual assessees to update their financial plan and quickly assess their tax liability for the financial year 2019-20. The Income Tax Act and the most recent budget announcements have given individual taxpayers many tax-saving options, so the burden of high tax liabilities can be reduced. Considering all the investment options, deductions, and exemptions available, here is a recommended tax-saving plan for the current financial year.
Invest in instruments that qualify under section 80C
Section 80C of the Income Tax Act is undoubtedly one of the most commonly used provisions by individual assessees. This section lists many investment options that qualify for a deduction. The amount invested in the investments specified is deductible from the taxpayer’s total income up to a limit of Rs. 1.5 lakhs. As a result, the taxable income is reduced, thereby minimizing the tax liability. Here are some investments that qualify under section 80C.
Take advantage of the National Pension Scheme (NPS)
NPS is a pension scheme sponsored by the government of India. Investing in this scheme offers you three kinds of tax benefits, making it one of the most lucrative tax-saving plans for individual assessees. Including NPS as a part of your financial plan makes you eligible for the following benefits.
Benefits under section 80CCD (1) and 80CCE:
Any individual taxpayer who subscribes to NPS can claim the invested amount as a deduction from their total income. As per section 80CCD (1), the deduction can go up to 10% of the gross income. This is in combination with the ceiling limit of Rs. 1.5 lakhs specified by section 80CCE.
Benefits under section 80CCD (1B):
In addition to the deductions allowed under section 80C of the Income Tax Act, investors can claim a deduction of up to Rs. 50,000 for the amount invested in Tier I NPS accounts. This provision is spelled out under section 80CCD (1B), thereby allowing investors to claim a total deduction of Rs. 2 lakhs for investment in NPS alone.
Benefits to salaried corporate employees:
Section 80CCD (2) of the Income Tax Act allows subscribers under the corporate sector to deduct their employer’s contribution to NPS up to 10% of the salary (basic + dearness allowance). There’s no monetary limit for this deduction.
Purchase health insurance
For taxpayers who want to enjoy the dual advantage of an insurance cover and tax benefits, health or medical insurance must undoubtedly feature in their financial plan. Investing in medical insurance makes it easier for you to deal with any possible significant health expenses later in life. In addition to this, health insurance also offers tax advantages under section 80D, as explained here.
Take advantage of the tax rebate under section 87A
In the interim budget of 2019, the government proposed an increase in the tax rebate offered to individuals whose taxable income does not exceed Rs. 5 lakhs. This rebate can be traced back to section 87A of the Income Tax Act. As per this section, individual assessees with a taxable income of Rs. 5 lakhs or lower are eligible for a tax rebate up to Rs. 12,500.
So, for instance, if your total income comes up to Rs. 6 lakhs, and if, after claiming a deduction of Rs. 1.5 lakhs under section 80C, your taxable income comes in at Rs. 4.5 lakhs, you’re eligible to claim a tax rebate under section 87A. In this case, your tax liability for the current financial year would come up to Rs. 10,000. So, the rebate you can claim shall be restricted to your actual tax liability (Rs. 10,000).
By adopting some of these strategies in your financial plan for the current year, you can simultaneously reduce your tax liability and invest in instruments that can help you save up for your future. Canara HSBC Oriental Bank of Commerce offers you many such tax-saving investment options that qualify as deductions under section 80C. Some of these options include the iSelect+ term plan, which is a term insurance policy, and the Invest 4G Plan, which is a ULIP scheme. These investment plans make for excellent tax-saving options that you can take advantage of to reduce your tax burden during the financial year 2019-20.