You need to hurry up before the tax-saving window closes on March 31 because if you don’t, you will have to pay the taxes you could have easily saved.
The current financial year (2017-18) is going to end very soon. It is, therefore, time for you to evaluate your investment goals, which were set at the beginning of the year, to save taxes. Pat your back if you executed your plans successfully. However, if you failed in doing so, then you need to hurry up before the tax-saving window closes on March 31 because if you don’t, you will have to pay the taxes you could have easily saved.
All the procrastinators must know a few things before they scramble to find the right mix of the investments which will help them in achieving their financial goals as well as bring them the much-desired tax saving. The right mix of tax-saving investments can help you save taxes and achieve your financial goals.
Here are 6 golden tips to help you save tax:
1. Analyse your salary structure to save taxes
There are a number of components in your salary which can be claimed as tax exemptions. Several allowances and perquisites like Leave Travel Allowance (LTA), House Rent Allowance (HRA), Medical Reimbursement, Uniform Allowance, Car Reimbursement, Telephone Reimbursement, Books and Periodicals, etc can reduce your tax liability if you can submit related proofs to your employer. However, most of the employers stop accepting the related proofs towards the end of January. So, at this point in time, you may not be able to claim all of these exemptions. However, you can still claim a few of them like HRA, LTA while filing taxes.
2. Tax benefit on your personal expenses
Apart from your salary, there are various common personal expenses like children’s tuition fees, health insurance premiums, life insurance premium, interest on education loan, home loan EMIs (interest and principal repayment), medical expenses on the treatment of certain critical illness, expenses on maintenance and medical treatment of disabled person, etc. which are eligible for tax benefits. Hence, you can claim these expenses while filing taxes if they are not reflecting in your Form 16. You should first aim to utilise these exemptions and deductions to the fullest, before you jump to any other tax-saving investment decision. If you still have scope for further tax reduction, then you can look out for various deductions available under Section 80 of the Income Tax Act, 1961.
3. Invest in Tax-Saving Investment Plans
If you want to save taxes further, there are several tax-saving investment opportunities available under the basket of Section 80C. PPF, Sukanya Samriddhi, NPS and ELSS are some very good tax-saving investment options. Other than these, there are several other options which qualify for Section 80C deduction. These include National Savings Certificate, Senior Citizens Savings Scheme, five year post office time deposits, 5 year tax saving bank fixed deposits and Specified Government Bonds. However, for most of these, the interest you get from your investment is taxable reducing your effective ROI.
4. Tax Benefit on Payment of Education Loan
Tax laws also provide relief to the taxpayers who are paying off an education loan. You can claim a tax deduction on the interest you pay on the education loan taken for yourself, your spouse or your child. There is no upper limit on this tax deduction. You can claim this deduction up to 8 assessment years. It is, however, advisable to pay off the education loan on priority as the banks charge a high rate of interest.
5. Tax Benefit on Home Loan
Just like education loan takers, people paying off home loans also get tax benefits. You can get a tax deduction on the principal component of your home loan EMIs under Section 80C, while interest component can be claimed under Section 24. Further, the first-time home buyers during the FY2016-17 can get an additional tax benefit of up to Rs 50,000 under section 80EE for the interest paid on their housing loan. A tax deduction is also available on stamp duty and registration charges. So, if you have an existing home loan and you still have further scope to invest under 80C, you can prepay some part of your home loan rather than taking any wrong investment decision in a hurry.
6. The Act of Charity
Your acts of charity or donations to various trusts, political parties and scientific and research institutions make you eligible for tax deductions under Section 80G, 80GGA and 80GGC. However, you should not forget to get a tax exemption certificate from the institution and not make any donation exceeding Rs 2,000 in cash.
(By Chetan Chandak, Head of Tax Research, H&R Block India)