Do you know people are paying income tax to a large extent at the end of every financial year? Specific deductions are available in Income Tax Act (ITA) which you can claim at the time of filing of your Income Tax return. With proper planning and investments, you can significantly save income tax. Here is some financial planning from which you can reduce the burden of Income Tax.
Retirement Planning:
Under section 80C of IT Act, Pension Insurance Plan is eligible for deductions, but annuities or payouts received as lump sums are partially or fully taxable.
Unit-Linked Insurance Plans (ULIPs) also offer opportunity for investing a part of the monthly premiums for dual advantage in assets of your choice while saving the rest for retirement. You can save the Income Tax on the money invested in ULIPs. You can claim benefits of deduction under section 80C of IT Act for maximum premiums up to ₹1.5 Lakhs.
Life Insurance Plans:
The life insurance premiums paid for Life Insurance Plans will not be taxed subject to total of ₹1.5 Lakhs. Payouts received under a life insurance policy is eligible deductions under section 10(10D) of the IT Act.
Education Loan and Income tax benefit:
Education Loan in the name of your spouse, children or in your own name is also an option to avail tax deduction benefit. Under section 80E of the Income Tax Act, Education Loan interest is eligible for tax deduction over and above the deductions claimed of Rs. 1.50 lacs for individual taxpayers.
Sukanya Samriddhi Yojana (SSY) :
You can open SSY account in the name of your daughter from her birth up to the time she turns 10 years old. The minimum investment amount is Rs. 1000/- to a maximum of Rs. 1.50 Lakhs per year for this scheme. Rs. 1,50,000/- per annum deductions is available under section 80C of IT Act.
National Pension Scheme (NPS) :
NPS is a very effective scheme for employees . Investments in NPS made up to Rs. 50,000 are eligible deductions under section 80 CCD (1B) and Additional investment up to Rs. 1,50,000/- are also eligible tax deductible under Section 80C of the Income Tax Act.
Public Provident Fund (PPF):
The PPF Scheme is very old and popular for availing Income Tax benefit. Interest earned as well as the amount withdrawal are all exempted from Income Tax. Rs. 1,50,000/- deductions are available under section 80C of IT Act for investment in PPF.
National Savings Certificate (NSC):
Rs. 1,50,000/- deductions also available for investments in NSC under section 80C of IT Act.
Tax Deduction benefits for Home Loans :
Section 80C: Repayment of Principal amount of Home Loan can be claimed Tax deduction up to Rs. 1,50,000/- under this section.
Section 24: Home Loan repayment towards interest charged upto Rs.2,00,000/- by the Bank/FI can be claimed as deduction under section 24 of the IT Act.
Section 80EEA: Deduction from Assessment year 2020-21
Income Tax Benefit on Interest on Home Loan (First Time Home Buyers)
An individual can claim deduction under section 80EEA of up to Rs. 1,50,000 in addition to deduction under section 24(b).
From financial year 2020-21, many of the existing deductions and exemptions will be removed from the Income Tax Act to simplify the tax laws. There is an option for the taxpayers to choose between old scheme and new scheme depending on whatever is suitable for them. The upside is that the new tax system offers the option to enjoy reduced tax rates, as tabulated here. Taxpayers can also switch between the old systems and new systems each successive financial year in order to minimize their tax burden.
Ramesh M. Hingu
AGM & Director, SBILD Aurangabad.
