The best way to teach your kids about taxes is by eating 30% of their ice cream. – Bill Murray
This humorous quote indeed has a great truth hidden in it. Just like eating away a good portion of the kid’s ice cream makes them unhappy by lessening their satisfaction, isn’t this the same case with taxes too? Yes, paying taxes hurts everyone, for it lessens your benefit by charging you additionally.
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Why Does Paying Taxes Hurt?
Your income, whether coming from salary or investment returns, makes you happier, for it gives you a sense of accomplishment. However, taxes eat away your income and take you a step back in achieving your financial goals. Especially in the case of investments, when you carefully put your money in funds, you expect to receive a certain sum of money from it later. But when your returns are reduced significantly due to taxes, then it leaves you feeling disappointed. It is because taxes always bring down your benefits. But everything said and done; tax needs to be paid. Otherwise, you will attract penalties and fine.
How Can You Save Tax?
Since paying taxes hurts the pocket, therefore you look for ways to save or minimize your tax payments. For this purpose, there are tax savings tips. By using such tips, you can bring down your expense, and thereby increase your overall benefit. Especially when it comes to investment options to save tax, there are several of them that you can choose from.
Tax-saving investments are an excellent source for putting your hard-earned money in. It is because the taxes will work in the following two ways –
- Premiums payable on such investments will be treated as tax deductions
In such a case, when premium payable will be deducted from your taxable income, it will bring down your income, and thereby the amount to be paid out as tax. This way, it will save you a share of your income tax.
- Returns will be tax-exempt
In this case, the returns received, either as maturity benefit, surrender value or as fixed monthly income, will all be free from taxes. This would mean that your income from such sources will not be subject to any taxes that may bring down the monetary benefit for you.
Therefore, going for` options to save tax will mean getting higher gains for you.
How to Save Tax Wisely?
There are many tax-saving options available these days. Therefore, carefully analyze the various options and choose the one that suits your needs the best.
1. Unit Linked Insurance Plan (ULIP)
Investing in this two-in-one plan will provide you with both life cover and investment benefits. Money invested in this is treated as a deduction under sec 80C, up to a limit of Rs. 1,50,000. Also, the gains under such a plan are free from tax. Reputable insurers like Max life Insurance offer ULIP plans that offer you various benefits like two free partial withdrawals in a year, flexibility to switch funds along with various loyalty benefits too.
2. Term Insurance
This plan offers life cover to your loved ones in your absence and also enjoys tax benefits under sec 80C. All the premiums paid towards such a cover are treated as deductions from your taxable income (1.5 lakhs per annum).
3. Health Insurance
Premium paid towards health insurance also gives tax benefit up to Rs. 25,000 under Sec 80D of the Income Tax Act. While if the premium is paid for parent’s health insurance policy, then the limit is Rs. 50,000, provided that the parents are above the age of 60.
Similarly, there are plans like the Equity Linked Savings Scheme and Public Provident Fund to offer similar tax benefits. You can include these in your portfolio as they make for good investment options to save tax.
What Are the Major Tax Saving Sections?
This section of the Income Tax Act, 1961 allows you(individuals and HUFs) to claim tax deduction up to Rs. 1,50,000 from the total gross income. However, this holds for only a few investments and payments.
This section mainly allows you to treat your premium payable for medical insurance as a deduction. Under this, a deduction of Rs.25,000 on insurance for a self, spouse, and dependent children can be claimed. Moreover, an additional deduction up to Rs 25,000 can be claimed for parent’s health insurance, if they are aged less than 60 years. If, however, they are more than 60 years old, then the deduction amount is Rs 50,000.
Also, if both taxpayer and parent(s) are of 60 years of age or above, then the maximum deduction available is up to Rs.1 lakh combined.
This section allows you to claim a deduction up to Rs. 2 lakhs on your home loan interest. This is valid if the owner or his family resides in the house property. However, if the house is on rent, then the entire interest is waived off as a deduction.
So, pay heed to these tax-saving tips and include a few such investments in your portfolio. By doing this, you can enjoy the various benefits that come along.
Happy investing, happy tax-saving!