On the path to systematic wealth growth, it is critical to prepare funds in order to weather unpredictable events and reach long-term financial targets. People can not only lessen their financial burden by lowering their tax payments, but they can also get advantages to safeguard their future and have more control over the money they make.
Tax planning is one method for lowering your tax bill while increasing your revenue. The income tax statute allows for deductions for different investments, savings, and expenses made by the payer within a fiscal year. We’ll go through some of the ways you may save money on taxes.
How Does Income Tax Work in India?
Many might prefer not to pay taxes on our earnings if we had the option. However, we must pay as per the rules and regulations. As Indian residents, we use the nation’s national infrastructure facilities and amenities, and income tax is a major generator of money for the country.
As a result, it is our obligation and duty to donate to the construction and maintenance of urban facilities. That is ensured by timely payment of income taxes and submission of income tax returns.
Income Tax Saving Options
It is really beneficial to save taxes by purchasing life insurance coverage. This has been made easier by different provisions of the Income Tax Act of 1961 that have simplified the procedure of saving tax with insurance coverage. Sections 80C, 80CCC, 80D, and 10 of the Internal Revenue Code apply to these tax-saving programs (10D). Now let us take a closer look at these tax-saving possibilities:
While considering the best approach to save tax on insurance, premiums might be the primary element that pops up. This is the focus of this section. Section 80C includes instructions on how to save tax on premiums, as well as a list of alternative investing strategies.
Deductions for premiums can be claimed up to Rs. 1,50,000. One important point is that if your insurance was granted prior to April 1, 2012, the payment amount you pay must not surpass 20% of the entire sum guaranteed. But, if your coverage began after this date, the monthly payments limit is set at 10% of the total guaranteed.
In this case, the only way to avoid taxes on insurance coverage is through a pension scheme. The payouts are based on the annuity paid for the pension schemes. It is crucial to remember that the deductions claimed under sections 80C and 80CCC cannot exceed Rs. 1,50,000.
80D of the Code
Not only may you reduce tax on the basic insurance policy, but you can also avoid tax on any riders that you acquire by purchasing insurance coverage. This part is primarily applicable to medical insurance, so you can receive deductions in this part if you invest in an illness insurance rider or an accidental damage rider.
Section 10 (10D)
Among all possible tax-saving choices, this chapter discusses the sum assured, which states that insurance claims are tax-free as long as the premium charged does not surpass 10% of the sum promised.
How to Plan Your Tax-Savings?
The opening of the fiscal year is the perfect time to begin arranging your tax-saving investment purchases. The majority of taxpayers postpone until the fourth quarter of the year, ending in hasty decisions. Conversely, if you prepare ahead of time at the beginning of the year, your investments can multiply and help you reach long-term objectives. Note that tax savings should be viewed as a bonus rather than a goal in and of itself.
Estimate your tax savings for the year by keeping the following in mind:
- Examine your existing tax-saving costs, such as insurance premiums, kid’s education costs, EPF contributions, house loan repayment, and so on.
- Subtract this sum from Rs 1.5 lakh to determine how much money to contribute. If your costs exceed the limit, you do not need to invest the full money.
- Pick tax-saving investments depending on your objectives and risk tolerance. Popular investments include ELSS funds, NPS, PPF, and fixed deposits.
In this manner, you’ll be able to find out how to reach the 80C limit. It is recommended to start investing during the first quarter of the fiscal year so that your investments may be spread out across the year. This will not only save you money at the end of the year, but it can also help you to generate more smart investing decisions.
Start Investing in ULIPs
The unit-linked insurance plan, or ULIP, is regarded as one of the finest tax-saving alternatives since it offers the perks of both insurance and investing. This plan is an excellent combination of high profits, superior security, and optimum tax savings. It provides tax exemption under Sections 80C and 10D of the Income Tax Act of 1961. Tax benefits are available in ULIPs at several points, such as when making monthly premiums, switching from debt to equity, or receiving maturity benefits. Furthermore, death benefits are tax-free under the scheme.
In the case of saving money for long-term economic targets such as child schooling, marriage, retirement, and so on, ULIPs are an excellent choice. Furthermore, this long-term investment product allows buyers to swap according to their financial objectives.
Overall, investing in ULIPs is a sensible investment. A combination plan, such as a ULIP, enables you to reap many benefits, such as tax savings, life insurance, and assured returns with no risk. So, if you are considering a ULIP investment, connect with the finest insurers in the industry, such as Aditya Birla Sunlife Insurance, since they give the best ULIP that provides life insurance as well as extra investment possibilities such as life-threatening illness, accidental/death benefits, and so on.
While tax savings are important, most banking researchers estimate that they should be combined with a long-term financial aim. This ensures that, in addition to tax savings, you are also concentrated on wealth building. Effective budgeting occurs at the beginning of the fiscal year, not at the end.
Disclaimer: This is a collaborative post on behalf of Aditya Birla Capital, but then again as always, we are devoted to providing content that is supportive and valuable to the readers.