Saving money on taxes is a time-consuming process that not everyone can grasp. Individuals are expected to desire to work for a living in addition to paying taxes. As the year draws close, thoughts of vacations, taxes, and new year’s resolutions begin to occupy your thoughts. The voluntary nature of a vacation or a new year’s resolution might be considered. The payment of income tax is a rite that everyone must perform.
When discussing income taxes, tax-saving strategies take precedence. India’s government collects a percentage of your earnings as income tax. Health care, roads, transit, and other public utilities are funded partly by the taxes we pay. Taxes on income are due by salaried and self-employed individuals. However, individuals can lower their tax burdens under several parts of the Income Tax Act of 1961.
If you’d want to learn more about reducing your taxable income, keep reading. It’s okay if you haven’t bothered to learn about tax-saving tactics since it’s about the money you’ve worked so hard for.
What are the Benefits of Tax Sheltering?
To keep more of your earnings after taxes, you must:
For your benefit, it is an investment that you make to help you reach your future goals
A savings account can help you build up a nest egg that you can then use to produce income
Let’s look at some of the most effective methods for minimizing your taxable income.
1. Health Insurance Plan
If you have health insurance, you can deduct the premiums paid from your taxable income under IRC Section 80D. The insurance for your dependents, including your spouse, children, and parents, will be covered since you have the funds to do so. In addition to the financial advantages, health insurance coverage might be a lifesaver in a medical crisis. Additionally, if you get a preventative health checkup, you can claim deductions up to Rs.5,000.
If you pay your premiums for health insurance, you can deduct up to Rs.25,000 from your taxable income. Even if you pay extra for your spouse, the upper limit remains the same. However, if you pay for the premiums of your dependent parents, you can deduct Rs.50,000/- from your taxable income.
2. Get a Life Insurance Policy
Life insurance plans are eligible for tax deductions under Section 80C. You have a wide range of options when it comes to tax-saving insurance policies. Term insurance is a good option when it comes to protecting your family’s finances. The most basic kind of life insurance, a term plan, costs just Rs. 22/- a day and is the most affordable.
Saving for the future by purchasing a pension plan is a sound investment. In many cases, young married couples choose policies like child plans because they are well aware of the enormous responsibilities of having children. The team’s kid plan helps them save for their child’s future expenses.
3. Invest in ULIP
Life insurance with a unit-linked benefit structure is a “unit Linked Insurance Plan.” A ULIP provides both life insurance and investing opportunities in one package. Part of your ULIP premium is invested (in equity, debt, or a combination thereof), and another part of it is used to cover your life insurance costs. Individuals have more control over their investments with ULIP plans since they may choose the funds they wish to put their money into.
You may accumulate a substantial amount of money over the long term by using a ULIP as an investing vehicle. Section 80C of the Income Tax Act, 1961, provides a tax credit for ULIPs.
4. Apply For a Home Loan
Reduce your taxable income by taking out a mortgage loan. When you pay off the principle on a house loan, you may be eligible for a deduction of up to 1.5 lakhs. Section 24B allows for interest repayment tax savings of up to Rs.2 lakhs. New developments in Section 80EEE have made it possible for borrowers to claim an additional tax deduction of Rs.50,000/- for acquiring a property, the amount financed, and the year in which the loan was sanctioned.
By the Union Budget 2021, you can deduct interest for an additional year if you take out a house loan between April 1, 2019, and March 31, 2022.
5. Reduce taxes on school fees for children
The cost of your children’s education consumes a large portion of your earnings. To offset the cost of their children’s education, parents can use Section 80C to deduct up to Rs 1.5 lakh from their taxable income. Schools, universities, pre-schools, and nurseries benefit if they provide a full-time educational program. This rule applies to taxpayers who pay for two children’s college tuition each.
This means that a married couple with four children can each take advantage of this benefit if they are both individual taxpayers. It is important to note that this advantage only applies to tuition costs; it does not apply to expenses such as development fees, late payment penalties, etc. A tax deduction of up to Rs. 1200 per year and Rs. 3600 per year for up to two children can be obtained if your employer provides a children’s education allowance or a dormitory expenses allowance.
It takes skill to develop a tax-saving technique that saves you money. There are several options, many of which are well-known, such as term insurance policies. However, there is no such thing as a one-size-fits-all life insurance policy. Instead, you need to look for ways to maximize your income and tax savings.