Paying taxes is a legal and moral responsibility for every citizen.
People are always on the lookout to save income tax. No one likes to miss out on ways that can save them money paid as tax, and sometimes, they just stick to the methods they have been applying and, as a result, resulting in missing more productive ways of saving tax. With suitable investments, you can save much more on income tax.
Here are five ways to save your income tax in 2021:
- Invest in Education - This comes under section 80E of the Income Tax Act. The interest amount paid against an education loan is not taxable. Premiums are liable to tax benefits over and above the claims of ₹1.5 lacs, and there is no maximum limit under Section 80E under which it can be filed. Individual taxpayers can apply for this benefit, but it is not open to Hindu Undivided Families. Like ULIPs or traditional savings plans, most child plans fall under conventional life insurance policies, thereby offering similar tax benefits. Young parents might feel the pressure of school fees and planning the future of their children.
- Avail a Home Loan- It is a dream for most people to buy their own homes. Nowadays, most people in the cities today live in rented accommodation while saving up money to buy their dream homes someday. You can save tax if you plan your home loan wisely following section 80C. Banks and NBFCs offer attractive home loans to uplift the real estate market; thus, benefitting you with a good deal on loan. Do mark that the Budget of 2021-2022 has kept the taxation system for home loans precise. So you can continue to get rebates under Sec 80C for the principal amount borrowed for the home payment, with deductions on interest paid under Sec 24.
- Use Market- Linked Instruments - It is time to move away from those traditional fixed savings schemes like bank FDs or RDs, whose income is taxed. Despite the stock market’s wavy trends, it helps one invest in market-linked instruments aligned with your financial goals. Equity-Linked Saving Schemes, National Pension Scheme, and Mutual Funds, and ULIPs are all examples of market-linked instruments. ELSS, NPS, ULIPs, and certain MFs exempt from taxation under Section 80C of the IT Act of 1961. For ELSS and ULIPs, if you go for premiums below ₹1.5 lakhs, no income tax is added with a lock-in period of 3 years.
You can read more about Mutual Funds here: A Beginner's Guide to Investing In Mutual Funds - Invest in a Life Insurance Policy - The best way to secure your and your loved ones is to buy a life insurance plan. Premiums done towards your life insurance will not be taxed if it is under ₹1.5 lakhs. Section 10D of the ITA allows any payouts received under a life insurance policy exempt from tax. If you were planning to buy term insurance, the time to do so is now.
- Save for Retirement - It’s never too soon to plan for your retirement, especially after knowing how pandemic the previous year went. This is an excellent year to plan and buy a suitable pension plan, which offers premium deductions under Sec 80C. But double-check if the payouts against annuity plans or received as lump-sum amounts may be partially or fully taxed. You can save paying any tax on the money invested in ULIPs, given the premiums do not cross ₹1.5 lakhs.
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In conclusion, if you plan to reduce your tax with smart investing in 2021, keep a note of some important dates or talk to your investment advisor to help you choose the suitable instruments to save tax as per your income slab and future goals.
(Check out 'Learn & Grow with Wizely' to learn more about tax planning and investments.)
