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What is the first thought that comes to mind when you hear the word tax? Is that confusion? Fear? Last minute panic investments?
What if someone told you that you no longer have to worry about losing a significant portion of your salary to taxes?
You may not know this, but several tax-saving options can help you save your wages to take home. It’s almost like you’re giving yourself a raise!
The best way to start tax savings is to assess your income outflows that may affect your tax. Has your salary increased? Have you changed your professional recently? Have you taken out a home loan? Think of all the events in your life that may have a tax impact and use it to create a portfolio of tax saving options.
Likewise, you should also be aware of changes in the budget that can impact your financial plan.
After taking note of all these points, you should use the following tips to develop a portfolio of tax saving options that will help you increase your investments, expand your wealth and also increase the salary you take home!
Cheered up? Read on to learn more!
Start tax planning early in the year
If you usually plan your tax savings at the last minute just to save some money at the end of each year, you are not alone. Many people make the same mistake every year and end up paying higher taxes or creating an impractical investment plan that is difficult to sustain in the long run.
That said, the best way to start tax planning is at the beginning of the year. By starting early, you not only save taxes, but also choose your tax savings options that best suit your goals and financial needs.
If you want to optimize your tax planning efforts, you should understand Section 80C of the Income Tax Act. This is the most relevant section that allows you to choose the right instruments for your portfolio, aimed at securing your finances in the long term, helping you in creating wealth and also saving taxes in the process.
Life insurance is considered to be one of the best tax saving tools available on the market today. However, it is essential that you do not buy life insurance just to save taxes. It is an integral part of your investment portfolio and must be acquired by assessing your family’s needs and other factors.
However, when you invest, all premiums paid on life insurance policies, including ULIPs, are eligible for tax deduction under section 80C of the Income Tax Act. You can enjoy the tax benefit of a maximum of Rs. 1.5L per year under this section. Life insurance plans help to save taxes on the policies adopted by you, your spouse or dependent children.
Online term insurance plans from reputable insurers, such as Max Life Insurance, allow you to review, compare and select policies that offer maximum benefit with low premiums across multiple type of taxes. These plans are easy to buy and save a lot of money on taxes.
Choose wisely between the new and the old tax regime
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The 2020 budget proposed a new tax regime that will be applied to the existing one. However, the new is optional. Simply put, you can choose between the two tax regimes, depending on your tax planning.
If you have income below R $, fifteen lakhs, you can benefit from the New Tax Regime, as you will have to pay lower taxes. However, you would also have to give up all exemptions and deductions from the 1961 Income Tax Act.
This means that if you choose to be taxed under the new regime, you will need to waive exemptions such as Residential Rent Allowance, Section 80 deductions, such as 80C, 80CCC, 80CCD, 80D and more. Even the standard deductions in Section 16, currently defined at Rs. 50,000 available to wage earners, as well as a deduction of interest on the home loan, pursuant to Section 24 (b) of the Income Tax Law, will be prohibited.
As the new tax system is optional and not imposed, it is advisable to be taxed under the old regime, if you are a high income earner with a robust investment plan.
Diversify your investment portfolio
When choosing the best tax savings options, make sure your portfolio is made up of low-risk investments, such as the Public Pension Fund, National Economy Certificate and Fixed Bank Deposits. You can also include high-risk equity-oriented investments, such as unit-linked insurance plans, which offer a double savings and investment benefit. Some equity-based investments offer high returns in the long run. So, if you have 8 to 10 years to invest, diversify your portfolio with these options to not only save taxes, but also create wealth for the future.
Optimize all your tax savings options
As a taxpayer, you can benefit from several deductions and not just those mentioned in Section 80C of the Income Tax Act. For example, you can claim deductions for health insurance premiums, repayment of home loans, tuition for up to two children, donations and treatment of certain illnesses.
You can also claim deductions of up to Rs. 25,000 per year for your health insurance premiums under Section 80D of the Income Tax Act. Any donations made to funds and charities are also exempt under Section 80G of the Income Tax Act.
Once you are equipped with all of this information, it’s easier to incorporate tax-saving instruments to create an efficient investment portfolio.