I have still not completed my income tax obligations. Kindly let me know how can I quickly complete this process? Please suggest some specific investments to bring down my tax liability.
Start with basics. Look at the sections that allow you tax benefits.
- When we pay health insurance premiums, we get tax deduction under Section 80D.
- Our life insurance premiums get tax deductions under Section 80C.
- If there are medical expenses on ourselves or dependents for certain major illness, deductions can be claimed under Section 80DDB.
After protecting our health and life, our next need is housing. Under housing, there are several sections to look at. - If staying in a rented house, we get tax benefit under Section 80GG.
- If there is a housing loan, the principal repayment of loan is deducted under Section 80C.
- Interest paid on housing loan has tax benefit up to Rs 1.50 lakh under Section 24.
- There is benefit on capital gains when we sell one house and purchase another under Section 54.
- Under Section 54F, if we are purchasing house and there has been long-term capital gains on any asset, the same is exempt to the extent of the price of the new house.
For children’s education, there are various tax benefits. - When we pay school fees, we get tax deduction under Section 80C.
- In case funds are borrowed for higher education, there is tax advantage under Section 80E.
Retirement planning also gets benefits under different sections. Saving for retirement also has tax benefit under Sections 80C and 80CCC. Initially, there was separate limit set under Section 80CCC. However, now there is a combined limit of Rs 1 lakh for Sections 80C, 80CCC and 80CCD.
Over and above these, tax deduction is also available for investments in debt as well as equity-based instruments. Equity-linked saving schemes (ELSS) is a mutual fund product. Investing in ELSS entitles tax benefit under Section 80C. Similarly, investments in debt-based instruments such as National Savings Certificate (NSC), Public Provident Fund (PPF) and certain fixed deposit of banks also attract deductions under Section 80C. Therefore, whether we invest to achieve our long-term goals in equity or near-term goals in debt, we get tax benefits.
During the months of February and March, the maximum number of life insurance policies are sold (for saving taxes). As we approach financial year-end, taxpayers will be bombarded with a variety of tax-saving instruments. Accountants will want us to invest in tax-saving instruments.
While it is definitely prudent to take advantage of legitimate tax-saving schemes, the focus should always be on our financial goals. Remember that we save money not to save tax, but to ensure that we have sufficient funds for our future responsibilities. Therefore, focus on future responsibilities, tax saving will follow on its own.
The writer is a certified financial planner.
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