Tips to save tax before 31st March
Since it is financial year-end, a lot of us are trying to save tax by making different kinds of investments.
We thought of giving some tips which our subscribers can use to save tax.
Before that, if you've not read our article on the various tax saving instruments, you can read it here. That article talks about which sections of the Income Tax Act you can utilize for getting tax deductions.
This article gives some tips on how to smartly utilize the same sections so that you can reduce the tax you pay to the government!
Here you go! (As always, this won’t take more than 3 minutes):
ELSS: Equity Linked Savings Schemes are Mutual Fund schemes that you can invest in and save tax under section 80C. They have a 3-year lock-in and give great returns. You can always start an SIP for an ELSS scheme of say, Rs. 12,500 per month. This will make sure of two things:
Full utilization of Section 80C (since 12,500 * 12 months = Rs. 1,50,000)
Disciplined savings, since you are saving some money every month, which will help you compound your money after a few years
However, do note that each SIP will have a 3-year lock-in. So every monthly debit will be frozen for 3 years in your Mutual Fund account.
Mediclaim for parents: Most of us have mediclaim. However, not many of us pay the premium for our parents. The Income Tax Act allows us to pay premium for our parents and get a tax deduction; so why not do it? If any of your parents don’t fall in the tax slab (i.e if they are retired/homemakers), or if their tax liability is lower than yours, why not pay their premium so that you get tax benefits? (You can always adjust it with them offline, later)
Preventive health check-ups: A lot of us forget to put these in our declarations to the HR. Amounts up to Rs. 5,000 for diagnostic/preventive health check-ups are exempt from tax. So use them well! Put in your diagnostic test bills and claim exemption under Section 80D.
Term Insurance: This is also a part of section 80C, so you can claim your term insurance premium also as a deduction. Since we all know how important a term insurance is, buy one and claim that deduction! (If you don’t know how important it is, read about it here). If you have term insurance, you can reduce the amount you put in ELSS since the total amount that is deductible is Rs. 1,50,000 anyway.
NPS (Additional contribution): Traditionally, investment in NPS was deductible under Section 80C of the Income Tax Act (within the overall limit of Rs. 1,50,000). However, in Budget 2015, the government has allowed an additional Rs. 50,000 as deductible, if invested in NPS, under section 80CCD(1B). You can therefore invest an additional Rs. 50,000 apart from what you can invest under section 80C and save more tax. If your taxable income is high, you need to utilize this so that you save up for your retirement as well as save taxes!
Critical illness cover: While most of us are able to fully utilize Section 80C for the full Rs. 1,50,000, a lot of us are not able to utilize Section 80D well, because insurance premiums for us are not that high. Here’s a pro-tip: Get a critical illness cover. It will not just help you save tax, but also give relief to you and your family, if, God forbids, you are diagnosed with a critical illness.
(For all those who don’t know, a Critical Illness plan is an insurance plan that pays you a lumpsum amount if you are diagnosed with a condition that is categorized as a “Critical Illness” by IRDAI. This is different from a Mediclaim in that you don’t need to provide hospital bills. The insurance company straight up pays you a pre-agreed amount on diagnosis of a critical illness. The premium you pay for this is relatively low, but it works wonders when adversity strikes!)
Some term plans also come with a Critical Illness rider. You may or may not choose them depending on your preference. However, do calculate the premium you would pay if you buy both separately, and both combined, and then decide whether you want to opt for the combo plan or not.
Well, those are a few tips for you to save tax this year!
You may get in touch with me at ankurajhaveri[at]gmail.com if you need any more help. Also, don't forget to like and share this article if it helped you!
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