Every month when your salary gets credited to your account, you feel a sense of joy that cannot be compared to anything else. However, when the financial year ends, ‘Tax’ becomes the buzzword around.You are filled with disappointment as that is when you need to part with a significant share of your income.
You might have seen others battling over submission of rent and insurance receipts to prevent getting the tax deducted at source. It is because tax saving is the only solution to reduce your tax liability.
If you began your career recently, you might not have proper knowledge about ways to save income tax as well as income tax saving limits.As a result, you might have even paid more tax than you should have.
To save taxes, you must first understand various tax slabs. You will pay taxes depending on which bracket your annual income falls into.These slabs also determine if your income is taxable or not.
For the financial year 2019-20 (AY 2020 – 2021), the income tax slab rates are as follows:
| Annual Income | Slab rates |
| Less than INR 2,50,000 | Nil |
| Between INR 2,50,000 and INR 5,00,000 | 5% |
| Between INR 5,00,000 and INR 10,00,000 | 20% |
| Above INR 10,00,000 | 30% |
How to Save Income Tax
There are several ways you can follow to increase the limit of your income tax savings. Most of these ways are broadly classified into three main categories:
- Insurance
- Investments
- Home Loans
Let’s talk about them all in detail –
- Insurance
One of the significant benefits of buying insurance policies is the tax rebate you get while paying income tax. Some related facts are as follows:
- Life insurance policies are known to offer financial security to your family. They providea large lump sum amount in case of your death. The premium you pay for these policies is tax-deductible under section 80C.
- Unit Linked Insurance Plans or ULIPs comes with the dual benefit of investment and life cover. The money you invest under these plans is eligible for tax-saving benefits, while also helping you create wealth in the long run.
- Health insurance policies cover the expenses of medical treatments to ensure that you need not worry about managing funds for healthcare emergencies. You can increase your income tax savings limit up to INR 50,000 by paying premiums of health insurance plans for yourself and your family members.
- Investments
There are certain tax-saving investment options wherein you put your money today to get significant returns in the future. Some of them are:
- ELSS
Equity-Linked Saving Schemes or ELSS is one way to gain tax benefits along with high market-linked returns on investment. These schemes have a lock-in period of 3 years, which means you can’t take your money out before three years, at least.
- FD
Another way to increase your income tax savings limit is to invest in fixed deposits or FDs offered by various banks. It is the most securetax-saving investment option that gives an attractive interest along with tax-saving benefits.
- Post Office Saving Schemes
The central government backs these schemes in India. The interest you get on investing in these schemes is revised quarterly, and you get the tax benefits under Section 80C as well.
- Home Loans
Just like insurance and other tax-saving investment options, the home loan you have borrowed from banks or NBFCs can help in saving taxes. As per Section 24 of the ITA, you can claim a deduction of up to INR 2,00,000 on the interest you pay in the form of home loan EMIs in a year.
Usually, most of you think about tax planning only at the end of the financial year. However, at that time, you may have to face many hassles in saving tax the right way. So, planand save taxes by investing your money wisely in the right instruments. Furthermore, the ways you choose to get tax benefits must be based on your specific needs.
So, stay one step ahead of taxes by adding the right investments in your portfolio.
