March and April are the most financially taxing months of the year, quite literally! We have seen so many people fretting over submitting all those confusing documents that the HR keeps asking. That CA friend/cousin also mumbles some financial jargon that most times, fly over our head!
March is somehow done with, phew! You’ve submitted all your tax saving documents, whichever way you could. But the questions have not stopped. April is the month when you’ll get the HR email asking you to state all tax savings, you’ll be making this year.
Though a tedious job, it is in our best interest as employee to declare tax saving plan for the FY so that TDS may be calculated and deducted accordingly. It seriously reduces tax burden at the end of the year as the employer will ascertain the tax liabilities now and will deduct tax in 12 installments thereby reducing the overall burden to pay the whole tax together.
You all know that you don’t have to pay taxes on your entire income because our government allows us tax saving on certain investments/ expenses we make. Now there are many ways to tell your employer about your tax saving investments and we know Section 80C is almost everyone’s favorite! Through this article we’ll help you understand the options available and the ones you should opt for u/s 80C and 80D.
Under section 80C, if you invest or spend on specified avenues (list defined under section 80C), you can claim a deduction of upto Rs.1.5 lacs from the total taxable income which implies that your total taxable income reduces by Rs.1.5 lacs. So, here’s what you got to do if you want to avail this deduction.
This is by far one of our favorites and the most advised solutions as it’s a simple investment with no complications except one that it has a lock in period of 3 years (which in a way is for your good). The reason that we advise people to invest into ELSS is because it serves two purposes with just one action – one is it helps you save taxes and secondly it helps you save money for your long-term goals.
The best way to invest into ELSS is Start a SIP and map it to one of your financial goals viz retirement, kids financial planning etc. Once you do so, your financial planning and tax planning gets sorted for years. For instance, if you start a SIP of more than Rs.12500 or more, it completes your Rs.1.5 lac limit; but if you start for a lesser amount then you can avail the below options.
Life Insurance Premium/ ULIP/ Annuity Plan
The premium that you pay for your life insurance policy is a deductible expenditure u/s 80C. While buying a Life Insurance policy, we strongly urge you to just buy a TERM PLAN if you’re the bread winner of the family and pay premium only for a term plan. To know why we are recommending you to buy just the term plan read the article.
Public Provident Fund (PPF)
Another investment avenue that you can explore in case you’ve still got some limit available is PPF i.e. Public Provident Fund. Public Provident Fund (PPF) scheme is a popular long term investment option backed by Government of India which offers safety with attractive interest rate (usually varies between 8%-9%) and returns that are fully exempted from tax. The only downside to it is that you don’t reap the benefits of compounding which you can in ELSS.
Repayment of Principal for Home Loan
Last but not the least, if you’ve taken a home loan and paying its installments every month; then the principal amount of the loan paid during a year is also a deductible expense.
Though there are other options too specified u/s 80C but the above options are the most sought after and widely recommended options.
Section 80 D
Apart from section 80C, there’s another section that helps you save tax while you pay for your well-being. As per this section any premium (upto Rs.25000) that you pay towards you or your family’s medical insurance (spouse and children) is deductible from total taxable income.
Not just this, if you’re paying premium for your parent’s medical insurance you can claim a separate deduction for them as well (upto Rs.25000). Now that you know so many options to save on tax, remember the most important part – when you plan for your tax saving; don’t ignore your financial planning. Let the two go hand in hand.
And if you still feel lost in this vast ocean of this recent knowledge above, just drop us a line here and we shall row you ashore!