Best Ways to Save Income Tax (for FY 2023-24)

The Importance of Tax Planning

As the famous saying goes, “A penny saved is a penny earned.” Tax planning is one of the ways which can help you save on taxes and increase your income. The income tax act provides deductions for various investments, savings, and expenditures incurred by the taxpayer in a particular financial year. In this section, we will discuss some of the avenues which can help you save taxes.

Tax Benefits of Home Loans under Section 80C and Section 24(b)

Many government-mandated programs, such as the PMAY (Pradhan Mantri Awas Yojana) and DDR (Delhi Development Authority) Housing Scheme, aim to make housing more accessible in India. Sections 80C and 24(b) of the Income Tax Act minimize monetary liability through lower tax burdens for those who buy a home.

Section 80C: Principal Repayment Deductions

The entire annual income spent on repayment of the principal borrowed amount for a home loan is eligible for Section 80C deductions of up to 1.5 lakh.

Section 24(b): Interest Exemption

Section 24(b) allows for tax exemption on the interest portion of a house loan up to Rs 2 lakh per year. If you rent out the newly purchased home, the entire interest component is exempt from annual income tax computations. Moreover, individuals who purchase property for building a home can also benefit from Section 24(b) if the construction process is completed within five years.

Additional Benefit for First-Time Homeowners

Section 80EEA allows first-time homeowners to claim an additional reduction in their annual tax liability.

Tax Savings through Health Insurance

Under section 80D, people can claim tax deductions for the portion of their annual taxable income spent on health insurance premium payments. The amount of deduction varies based on the age of the insured and the coverage.

Government Schemes for Tax Savings

Various government-mandated schemes offer high returns on total investments along with tax waivers. Individuals can claim up to Rs 1.5 lakh spent on such investments as tax waivers on total annual income under Section 80C of the Income Tax Act. Some of the eligible schemes include:

  • Senior Citizen Savings Scheme (SCSS)
  • Sukanya Samriddhi Yojana (SSY)
  • National Pension Scheme (NPS)
  • Public Provident Fund (PPF)
  • National Pension Scheme (NPS)

Tax Benefits of Life Insurance Plans

Section 80C of the Income Tax Act provides deductions for premium payments, and Section 10(10D) provides deductions for the sum promised received at maturity or early death of the insured, whichever occurs first. However, the extent of deduction depends on when the insurance policy was purchased.

Exploring Investment Options under Section 80C

Section 80C of the Income Tax Act offers various tax-saving options for individuals and HUFs in India. This section includes a range of investments and expenses eligible for deductions, up to a limit of Rs. 1.5 lakh in a financial year.

Some Popular Investment Options under Section 80C:

  • 5-Year Bank Fixed Deposit
  • Public Provident Fund (PPF)
  • National Savings Certificate
  • National Pension System (NPS)
  • ELSS Funds
  • Unit Linked Insurance Plan (ULIP)
  • Sukanya Samriddhi Yojana (SSY)
  • Senior Citizen Saving Scheme (SCSS)

Apart from deductions under Section 80C, there are various deductions under Section 80 that can help you save on income tax. These include deductions for health insurance premiums, home loan interest, donations to charitable institutions, interest paid on education loans, and more.

The best time to start planning your tax-saving investments is at the beginning of the financial year. Avoid procrastination, and follow these steps to plan your tax-saving for the year:

  1. Assess your existing tax-saving expenses, such as insurance premiums, tuition fees, EPF contributions, and home loan repayments.
  2. Deduct these expenses from the Rs. 1.5 lakh limit to determine how much you need to invest.
  3. Choose tax-saving investments based on your goals and risk profile, such as ELSS funds, PPF, NPS, and fixed deposits.

By planning early in the financial year, you can spread your investments, avoid year-end burdens, and make informed decisions.

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