We’re in the final days of the financial year 2017-18. If you have started earning an income recently, you may be required to pay taxes towards it. One way to lower your tax incidence is to buy tax-saving products such as insurance and PPF. You must do so before March 31. In this article, we’ll summarise some quick and smart ways for you to save income-tax.
80TTA: DEDUCTIONS ON INTEREST EARNED
If you have a bank account, fixed and recurring deposits, National Savings Certificate, Kisan Vikas Patra or any other instrument generating interest income, note that interest income up to Rs 10,000 in a financial year is tax-free. The rest is taxable as per your income tax slab. For example, if you have Rs 1.5 lakh in interest-generating instruments earning 7 per cent per annum compounded quarterly, your interest income for the year would be Rs 10,778, out of which you’ll be taxed as per your slab on Rs 778.
80C: SAVE Rs 1.5 LAKH
1 Fancy Taking Moderate Risks? Buy ELSS: Equity-Linked Savings Schemes (ELSS) are mutual funds that allow you to invest in the stock market and claim tax deductions. You can start investing from Rs 500 a month. You can start and stop your ELSS investment as per your wish. ELSS funds have a three-year lock-in — the lowest of any tax-saving instrument. This means you can redeem your money quickly. You can register online with a mutual fund aggregator or fund house to start investing immediately.
2 Don’t Like Risks? Invest in PPF: The Public Provident Fund is the best tax-saving and long-term investment scheme for those investors who eschew risk. Currently, PPF offers 7.6 per cent returns, which are completely tax-exempt. Open an account via your participant bank with just Rs 100, and pay Rs 500 a year to maintain your account. PPF have a 15-year tenure and partial withdrawals are allowed from the sixth year.
3 Just Need A Quick, Safe Tax Saver? Get A 5-Year FD: A five-year fixed deposit is just that — a deposit you open with your bank or local post office for a tenure of five years. The returns currently hover around 7 per cent. The deposit amount can be tax deductions.
4 Need Life Insurance? Get A Term Plan: Your first life insurance should be a term insurance policy. These allow you to cover your life risks at low costs. If you are a 25-year-old male with no tobacco habit, earning
Rs 4 lakh annually, you can get a life cover of Rs 1 crore with annual premiums starting from Rs 6,143. You can compare and buy these online, and also add useful riders and
add-on such as accidental death cover.
80D: SAVE Rs 55,000
1 Buy Health Insurance For Yourself: It’s not enough to have a health insurance from your employer. You must also have your own, independently-purchased health cover. The I-T Act allows a generous deduction of Rs 25,000 for premiums paid towards a health policy. If you are a 25-year-old, you can buy a cover of Rs 5 lakh for annual premiums around Rs 5,000.
2 Buy It For Parents, Too: You can claim a further Rs 25,000 for premium paid towards health insurance purchased for your parents. If any of your parents are over 60 years, this deduction can be raised to Rs 30,000.
80E: CLAIM DEDUCTIONS ON EDU LOAN
The interest you are paying towards your education loan EMIs can be claimed as deductions. This deduction is allowed only for eight years starting from the year in which your loan repayment started. You can’t claim deductions beyond the eighth year of the loan.
80G Earn DEDUCTIONS FOR CHARITY
This section encourages do-gooders to claim deductions for donations towards charities. You can claim 100 per cent or 50 per cent of your donations with or without restriction. For example, 100 per cent of your donation without limit towards PM’s National Relief Fund is deductible. Cash payments up to Rs 2,000 only are deductible, and the rest must be paid by cheque or online transfer.
Apart from these, don’t forget to collect rent receipts towards HRA deductions, travel receipts for LTA allowances of Rs 50,000, and medical bills up to Rs 15,000. Lastly, your EPF contributions also earn you tax deductions under Section 80C, so don’t forget to take it into account.
(The writer is CEO of BankBazaar.com)
