Now that we are in January, only 3 months are remaining for the financial year 2021-2022 to end.
Have you done your tax saving planning already? If not, it is important that you target to complete it by February to be mentally rest assured that you’re saving as much tax as possible, as per various sections provided by the Government.
Before you read further, know that the term “Deduction” means, you can save tax on income of that amount, and only the balance income will be taxable. So say your income is Rs. 100 and the deduction is upto Rs. 15, then only Rs. 85 of your income is taxable.
Options for tax saving that you must surely know of,
Under Section 80C
- You are eligible for a tax deduction of upto Rs. 1.5 lakhs. It can be a combination of,
Public Provident Fund (PPF) Scheme
Tax Saving Mutual Funds
- An ELSS is?an Equity Linked Savings Scheme, that allows an individual or HUF a deduction from total income of up to Rs. 1.5 lacs under Sec 80C.
- The best way to invest in this is by starting a monthly SIP.
Child's school fees
- Tax deductions on tuition/education fees paid by a parent towards educating his/her children, can be availed.?But do read and understand exactly how much portion of the school fees is tax deductible - only the Tuition part of it. For example, if the total school fees per year is Rs. 50,000, a lesser portion of it may be tax deductible, and not the entire Rs. 50,000.
Under Section 80D
- You are eligible for a tax deduction of upto Rs. 25,000.
- This is mainly for the premium you pay for a mediclaim policy.
- A premium payment of upto Rs. 25,000 is tax deductible. So if your premium is Rs. 16,650, only that much will be considered under tax deductible.
- The medical insurance premium paid for parents additionally qualifies for the?Section 80D deduction of up to Rs 25,000 every financial year. But if both your father and mother or either of them is a senior citizen, then the maximum tax rebate limit goes up to Rs 50,000 in a financial year.
- Thus, plan with your CA as to whether you should pay for your parent’s mediclaim premium, or should it paid from their own account, for a higher tax deduction.
- To know more, visit, https://www.policybazaar.com/health-insurance/section80d-deductions/
Taken a Home Loan?
Staying on Rent?
- If yes, you are eligible to get deduction for HRA (House Rent Allowance).
- To more about the amount for your HRA deduction, contact someone from your Accounts team.
National Pension Scheme (NPS)
- An additional deduction for investment up to Rs. 50,000 in NPS (Tier I account) is available exclusively to NPS subscribers under subsection 80CCD (1B). This is over and above the deduction of Rs. 1.5 lakh available under section 80C.
- Investing in NPS is not like a fixed income as in PPF. There are various things to understanding before you invest. You must read about where the money is going to be invested, and how and when can you redeem (withdraw) your investment back.
- To know more, visit, https://www.npscra.nsdl.co.in/features-and-benefits-of-nps.php or https://www.npscra.nsdl.co.in/all-faq-withdrawal.php
Have children?
- If you have opened a savings account for your child, Rs 1,500 of the interest income per child for two kids will be tax-exempt. In fact, any income will be entitled to an exemption of Rs 1,500 a year, under Section 10 (32).
Deduction for dependent with disability, disease
- Do check Section 80DDB and speak to your CA about deductions for heavy medical expenses. There are clauses for under age 60 and above age 60.
Education loan for your Spouse/Child
- If you have taken an education loan for your spouse/child for higher studies, you will get tax benefit on repayment of interest for up to 8 years starting from the year in which interest payment begins, under Section 80E. Do check with your CA from where to take this loan, as remember that the loan has to be from any financial institution such as a bank or any other banking institution approved by the government.
Donations
- Under Section 80G, you are eligible to get tax deduction on donations made.
- But, do remember that only some donations are 100% tax deductible, and most others are 50% of the amount or even lesser.
- So when you make a donation, do check what is the % applicable, and ensure to save the receipt of the donation. Also ensure your PAN is linked to the donation, to ensure to get the deduction.
Disclaimer: This article is based on personal knowledge and any recommendations mentioned are purely based on personal experience, and not to be applied directly without consulting your own financial advisor or chartered accountant. Double verify any amount(s) mentioned in the article before planning your investments.
Plan tax saving throughout the year, not in Feb-March at the end
To avoid last minute burden of managing money and investing for taxing, it is important to plan the entire year in advance starting from April 2022 itself, for the financial year 2022-2023; and invest strictly as per a pre-decided plan, even if it means to delay some other expenses that are avoidable.
Using a simple method of creating a table as explained below, will be super effective and ease to manage.
- PPF - Say you decide to invest all of 80C’s amount of Rs. 1 Lakh, divide it by 4 and make the investment at the beginning of every quarter. Thus, the quarterly investment will be Rs. 25,000 each.
- Tax saving mutual funds - Say you decide to invest Rs. 50,000, invest them as an SIP every month. Thus, approx 4,000 each month.
- Mediclaim - Say you have a yearly payment of Rs. 11,650 for a floater policy between You-spouse-child, then note that date down in the table so that you know that you need to keep that money available in that month.
After putting down all the details date-wise, sort the table by ascending order of the date.
You must have a month-wise total amount, so that your expenses planning for the month can be done accordingly.
