BEST WAYS TO SAVE INCOME TAX FOR FY 2024-25
As the well-known proverb states, “A bird in hand is worth 2 in a bush”. One strategy to reduce your taxes and raise your income is through tax preparation. The Income Tax Act allows deductions for a range of investments, savings, and expenses that a taxpayer may incur within a given fiscal year. We’ll talk about a few ways you can reduce your tax liability.
We frequently spend money on things that make our lives better but can also put us in serious financial trouble. The government provides income tax exemptions on direct taxes that are assessed on your entire pay to greatly lessen this burden.
At Filingsfirst, we can help you manage your taxes completely hassle-free.
1.Buy a home loan to enjoy tax benefits under Section 80C:
While Sections 80C and 24(b) reduce financial liability by lowering tax loads, numerous government-mandated programmes, such as the PMAY (Pradhan Mantri Awas Yojana) and DDR (Delhi Development Authority) Housing Scheme, attempt to increase housing accessibility in India.
Up to 1.5 lakh in Section 80C deductions are available for the entire yearly income used for repaying the principal amount borrowed. Up to Rs 2 lakh in annual tax exemption is granted on the interest part of a home loan under Section 24(b).
And if you decide to rent out the newly acquired house, the whole interest component is not included in your yearly income tax calculations.
As long as the building process is finished in five years, anyone who buys a property with the intention of constructing a home can also benefit from section 24(b).
If you are a first-time homeowner, you are eligible to get an extra annual tax liability reduction under Section 80EEA.
2.Purchasing health insurance:
Under Section 80D, individuals can deduct from their taxable income the amount of money they pay in premiums each year. Certain amounts are not included in these income tax calculations, depending on the insured person’s age.
3.Put your money in government-run programmes:
Several government-mandated programmes provide tax exemptions in addition to substantial returns on overall investments. Under Section 80C of the Income Tax Act, an individual may deduct up to Rs 1.5 lakh from their total yearly income as tax exemptions for investments of this type.
The following tools can be purchased to receive tax exemptions:
- Senior Citizen Savings Scheme (SCSS)
- Sukanya Samriddhi Yojana (SSY)
- National Pension Scheme (NPS)
- Public Provident Fund (PPF)
- National Pension Scheme (NPS)
4.Life insurance:
The Income Tax Act’s Section 80C deals with premium payments, while Section 10(10D) deals with the amount promised to be collected upon the insured’s maturity or early death, whichever comes first.
However, if the insurance is purchased after April 1, 2012, Section 80C allows for the tax benefit of up to Rs 1.5 lakh paid on yearly premiums, as long as it represents less than 10% of the total amount assured.
As long as the total premium payments do not above 20% of the insured amount, claims under Section 80C may be made if the policy was acquired prior to April 1, 2012.
Purchase or renewal of life insurance, as well as annuity payments made using monthly wages on such plans, qualify for up to Rs 1.5 lakh in tax savings under Section 80CCC.
Section 80CCD(1) allows exemptions of up to Rs 1.5 lakh, but only for specific pension funds under section 23AAB.
5.Section 80C opportunities for investment
The Income Tax Act’s Section 80C offers the most well-liked tax-saving choices for individuals and HUFs in India. You can deduct up to Rs. 1.5 lakh from your eligible costs and a variety of investments under this section.
| Investment | Returns | Lock-in Period |
|---|---|---|
| 5-Year Bank Fixed Deposit | 6% to 7% | 5 years |
| Public Provident Fund (PPF) | 7% to 8% | 15 years |
| National Savings Certificate | 7% to 8% | 5 years |
| National Pension System (NPS) | 12% to 14% | Till Retirement |
| ELSS Funds | 15% to 18% | 3 years |
| Unit Linked Insurance Plan (ULIP) | Varies with Plan Chosen | 5 years |
| Sukanya Samriddhi Yojana (SSY) | 7.60% | N/A |
| Senior Citizen Saving Scheme (SCSS) | 7.40% | 5 years |
How should you arrange your annual tax-saving investments?
The beginning of the fiscal year is the ideal time to begin organising your tax-saving investments.
The majority of taxpayers wait until the final quarter of the year, which causes them to make snap decisions. Alternatively, by making plans early in the year, your assets have the potential to grow and support your long-term objectives. Recall that tax savings ought to be a bonus rather than the main objective.
To help you plan your tax savings for the year, consider the following advice:
- Examine your current tax-saving expenses, such as insurance payments, child care costs, EPF contributions, and home loan repayment.
- To determine the appropriate amount to invest, deduct this amount from Rs 1.5 lakh. If your expenses are more than the maximum, you don’t have to invest the whole amount.
- Considering your risk tolerance and investing objectives, make tax-saving choices. Some of the well-liked options are fixed deposits, PPF, NPS, and ELSS funds.
You can determine how to reach the 80C limit in this manner. To spread your investments throughout the course of the year, it is better to start investing in the first quarter of the fiscal year. You won’t have any debt at the end of the year if you follow through on this, and it will also help you make wise investment choices.