How to save income tax in 2021?

The tax saving season is in full swing as the financial year closes on 31st March 2019 and you want to explore all possible avenues to save as much tax as possible. While the new Interim Budget 2019 has made some very good changes, these changes would be applicable from the next financial year (1st April, 2019 onwards). You would, therefore, have to file your taxes on 31st March, 2019 as per the existing tax norms.

Many of you approach seasoned tax practitioners to help you prepare your taxes while some of you like to file your taxes yourself. Whatever be your choice of tax filing, one thing which every one of you looks for is the way to save the maximum possible tax outgo. So, for all of you taxpayers, here are some of the ways of saving your tax outgo this 2019 when filing your returns for the financial year 2018-19–

  • Utilize Section 80C to the fullest

Section 80C is a blessing for taxpayers as the section helps you reduce your taxable income by INR 1.5 lakhs. The section lists some expenses and investments which are tax-free in nature. If you have incurred such expenses and/or make investments in the tax-free avenues, you can claim a deduction of up to INR 1.5 lakhs under this section. Some common instances of tax-free options under the section are as follows –

  • EPF and PPF investments
  • Life insurance premiums paid
  • Tuition fee paid for up to two children
  • Home loan principal repayment
  • Mutual fund ELSS schemes, etc.

So, make sure to use Section 80C to the fullest to claim a deduction of INR 1.5 lakhs on your taxable income.

  • Buy health insurance and utilise Section 80D

Premiums paid for health insurance policies are also allowed as a tax deduction under Section 80D. The limit of deduction is up to INR 25, 000 if premiums are paid for you, your spouse and dependent children. This limit increases to INR 50, 000 if you are a senior citizen. Moreover, if you pay premiums for the health plan for your dependent senior citizen parents, you can claim an additional deduction of up to INR 50, 000. So, buy a health insurance plan for yourself and your senior citizen parents and save tax on up to INR 1 lakh of your taxable income under Section 80D.

Here is a video to know how to save additional tax benefits:

  • Use loans to claim tax deductions

Home loans and education loans also give you tax saving advantages. Besides the principal repayment of your home loan, the interest component is also allowed as a tax-free expense under Section 24. The limit is INR 2 lakhs. Moreover, if the property is rented out, the entire interest paid on the home loan on such property is allowed to be tax-free. You also get an additional limit of INR 50, 000 on the home loan interest paid if you are a first-time homeowner under Section 80EE.

Besides home loan, education loans also give you a tax benefit. The interest paid on such loans is allowed as a tax-free expense under Section 80E.

So, if you have these loans, they can help you with tax saving.

  • Save tax on your savings account interest

The interest that you earn on your savings bank account and post office savings account is allowed as a tax-free income up to a limit of INR 10, 000 under Section 80TTA of the Income Tax Act. This limit increases to INR 50, 000 if you are a senior citizen.

  • Donate

Donations not only give you mental satisfaction of doing charity, but they also help you save your taxes as well. Money donated to recognised charitable institutions is allowed as a deduction under Section 80G. 50% or 100% of the donated amount is allowed as a deduction depending on the charity selected. For instance, charities which allow 50% of the donation as tax-free deduction include the following –

  • Prime Minister’s Drought Relief Fund
  • Indira Gandhi Memorial Trust
  • Jawaharlal Nehru Memorial Fund, etc.

Similarly, charities allowing 100% of the donation as a deduction are as follows –

  • Prime Minister’s National Relief Fund
  • An approved university/educational institution which is of National eminence
  • National Defence Fund established by the Central Government, etc.

So, donations also give you tax advantage which helps you in saving tax.

You can, therefore, use these above-mentioned ways to reduce your tax liability. Be aware of the relevant tax deduction sections when you file your taxes this 2019 and save the maximum possible tax outgo. Moreover, with the new changes introduced by the Union Budget 2019, the financial year 2019-20 promises great tax savings for the middle-class earners. So, from the new financial year starting from 1st April, 2019, here are the ways which would lower your tax liability –

  • Claim tax rebate if your net taxable income is up to INR 5 lakhs

The highlight of the Union Budget 2019 is the introduction of tax rebate for individuals having a net taxable income up to INR 5 lakhs. As per the proposed rules, no tax would be payable in such cases giving middle-class taxpayers complete tax relief. So, if you have an income of up to INR 7.5 lakhs, you can claim a full tax rebate by lowering your taxable income using the following tax-saving measures –

  • By utilising the full potential of Section 80C and reducing your taxable income by INR 1.5 lakhs
  • By investing in NPS scheme to avail a further deduction of INR 50,000
  • By claiming a standard deduction of INR 50,000 if you are salaried

Thus, these measures help you lower your taxable income by INR 2.5 lakhs bringing it down to INR 5 lakhs or below. When your net taxable income falls within INR 5 lakhs, you get a full tax rebate and have to pay no tax.

  • Get the benefit of enhanced standard deduction limits

The Interim Budget 2019 also enhanced the standard deduction available to salaried individuals to INR 50,000 from the existing INR 40,000. So, you can get an additional tax saving on INR 10,000 of your salary income and reduce your tax outgo.

So, in the new financial year April 1st, 2019, pay heed to the changes introduced by the Interim Budget, 2019 and save the maximum possible tax outgo. In fact, if you can bring your taxable income within the INR 5 lakh limit, you can even escape the tax burden altogether. Good news, isn’t it?

 

Read Also: 8 financial instrument you can quickly buy online to save tax in India

Read Also: Complete guide on how term insurance policy can help you save tax

8 financial instrument you can quickly buy online to save tax in India

Are you confused with the word tax? And “tax saving instruments” and sections etc. Here I try to simplify all terms that about the most relevant easy, safe instruments for you to invest and just be relaxed about your money.

Here are 8 financial instruments which you can invest immediately online through the click of a button.

1) Provident Fund

Provident Fund has been the preferred savings instrument for people for many years. Perks such as minimal risk, guaranteed return, and ease of contribution makes it one of the most commonly used tools to earn returns as well as save tax. There are multiple variations such as Public Provident Fund (PPF), Employee Provident Fund (EPF) and Voluntary Provident Fund (VPF) that one can choose from. The last two categories are applicable for salaried individuals. Another point which makes it a favorable option (when compared to bank deposits) is that the interest earned is exempt from tax.

Tax Benefit for investment in Provident Fund: up to INR 1,50,000 p.a. is tax-free U/S 80C

Maturity Amount: is also completely tax-free.

How to track your EPF investment online through UAN:

  1. You need to visit the EPFO official website
  2. Click on the “Know your UAN status” tab
  3. Fill in your details like the EPF number or your member ID, if you have along with your basic details like Name, Registered Phone Number, Email ID, Date of Birth, etc.
  4. The OTP would be sent to your registered mobile number for login
  5. Once you under the OTP, the UAN details would be emailed to your registered email id
  6. Then you can check your EPF details online with the UAN no.

 

2) National Pension Scheme (NPS)

In recent years, NPS has emerged as the dark horse amongst all the tax saving schemes. The changes in government regulations have made it a more lucrative and profitable option for investors. NPS subscribers can claim a tax deduction of 10% of their gross income. Additionally, an extra deduction of Rs. 50,000 is offered for NPS (Tier 1) account. This benefit is over and above the Rs. 1.5 Lakhs limit under Section 80C. In the last five years, the average return has been around 10.8% for NPS investors.

Taxation: Tax Benefit is given to Tier I Account and not to the Tier II Account.

Tax Benefit: Total INR 2 lakhs p.a.

  • Up to INR 1,50,000 p.a. is tax-free U/S 80CCD(1) and
  • Additional Tax Benefit of INR 50,000 p.a. U/S 80CCD(1B), over and above INR 1.5 lakhs of 80C for individuals contributing towards NPS

Maturity Amount:

  • 40% of the entire corpus can be withdrawn tax-free at vesting when the annuitant is 60 years old,
  • 40% of the corpus needs to be used to buy the annuity from a PFRDA listed insurance company (an annuity is taxed as per slab) and
  • The remaining 20% of the corpus can be used to buy an annuity or withdraw as a lump sum and taxed as per slab.

 

3) Traditional Life Insurance

Most of us equate life insurance with peace of mind and savings. However, there is a third underlying benefit associated with these policies: How to save tax? Section 80C allows tax deduction for premium paid for self, spouse and children’s policy. The only condition is that the sum assured should be at least 10 times the value of one premium installment.

Tax Benefit: 

The premium till INR 1,50,000 p.a. is tax-free U/S 80C.

 

4)Unit Linked Insurance Plans:

Who says you can’t have your cake and eat it too. ULIPs are a classic example. They have combined two great benefits – insurance and wealth appreciation. Investors have the flexibility to move between equity and debt as per their preference. From a tax standpoint, the premium paid and the maturity proceeds are exempt from taxation.

Tax Benefit:

The premium till INR 1,50,000 p.a. is tax-free U/S 80C.

Maturity Amount:

The maturity amount is tax-free U/S 10(10)D provided sum assured is at least 10 times the premium.

 

5)Equity Linked Savings Scheme

ELSS is a great choice for investors with a long-term focus. What makes it more lucrative (apart from the attraction of high returns) is the fact they help the investors how to save tax and provide an option to opt for growth or dividend as per their preference. Just remember that ELSS investments are high-risk investments as its invested in equity markets but should be looked at from the long-term perspective and it will give you high returns.The online tax calculators provide a return on investment for your ELSS schemes for a better understanding.

Tax Benefit:

The investment till INR 1,50,000 p.a. is tax-free U/S 80C.

Maturity Amount:

The maturity amount is taxed at a flat rate of 10% for capital gains of more than INR 1 lakh p.a.

 

6)Sukanya Samriddhi Yojna (SSY)

With this initiative from the government, there are double reasons to celebrate when you are blessed with a girl child. Started under the “Beti Bachao, Beti Padhao” campaign, this scheme enables parents to start a deposit scheme for the child. Investment in this scheme helps you how to save income tax under 80C. Additionally, the maturity proceeds are also exempt from tax. Currently, the scheme offers 8.5% interest per year. Also, as per the government rules, the SSY interest rate will always be maintained higher than what is offered by PPF.

Tax Benefit:

The investment till INR 1,50,000 p.a. is tax-free U/S 80C. The interest that compounds annually is tax-free.

Maturity Amount:

The maturity proceeds are completely tax-free.

 

7)Fixed Deposits with banks

These deposits come with a lock-in period of five years. Though the returns are not as high as some of the other options, they provide benefits such as ease of operation, digital banking, etc. There are some online tax calculators which provide an estimate on the return on investment for tax saving bank FDs.

Tax Benefit:

The investment till INR 1,50,000 p.a. is tax-free U/S 80C.

Maturity Amount:

The interest is tax-free till INR 10,000 p.a. in FY 2018-19 and till INR 40,000 from FY 2019-20 U/S 80TTA. The interest more than the 80TTA limit is taxed as per slab.

 

8)Medical Insurance

Health insurance as a concept has still not penetrated in the Indian market. As per a study was done by the National Health Profile in 2017, only 27% of people in the country had opted for health cover. However, with the increasing medical costs and a sea of lifestyle diseases plaguing us these days, it is a must-have for each individual. And what makes it a win-win proposition is the tax savings that one can enjoy with the schemes. Under Section 80D, individuals can claim the tax deduction for medical cover premium. It can be for self and family members (spouse, kids and parents). The benefit is capped at INR 25,000 (if age is less than 60 years) and INR 50,000 for senior citizens.

Tax Benefit: The health insurance premium is tax-free U/S 80D till a specified limit.

health insurance

Maturity Amount:

Not applicable as there is no maturity amount is health insurance plans.

So, whatever is your risk appetite and financial goal, there is something out there for you to invest your money and save tax. Go make your choice.

Click on a video to know the facts about tax saving products:

 
Below is a table giving a summary of all the benefits of Tax savings instrument
save tax instrument

Read also How impactful has the interim budget 2019 been on your income and investments

Read also Complete guide on how term insurance policy can help you save tax

Complete guide on how term insurance policy can help you save tax

Term insurance policy is an essential requirement for every earning member of the family who has financial dependants. If you have spouse, children or elderly parents financially depending on you, it’s essential to have adequate insurance coverage to protect your family in the event of eventualities. Though the primary objective of buying term insurance plan is for financial protection, it also offers the tax benefits. Let’s take a detailed look at how to save income tax with the help of these online tax calculators for term insurance plans.

Buy term insurance to serve dual aim – protect your family and save tax too!

Term insurance plans are pure insurance plans that only offer death benefits. That means, if you survive the policy term, you will be paid nothing in return. Term insurance premiums are not invested anywhere. It’s basically an essential cost you are making every year to secure your family’s financial future when you are not around. As you make every financial decision, be it insurance or any investment, tax planning has to be part of the buying process. Part of the money that is spending to buy life protection cover can save you some amount of tax.

Term insurance as a tax saving tool

Life insurance products are one of the most effective tax saving schemes available in the market. Let’s see how to save tax using term insurance plans. Here are the host of tax benefits offered by term insurance plans.

  • Premium Invested: Tax Exemption U/S 80C till INR 1.5 lakhs p.a.

You can avail tax benefits on the premiums you pay on term insurance every year. Premiums paid on life insurance policies up to INR. 1,50,000 qualifies for tax deductions under Section 80C of the Income Tax Act, 1961.The deduction is available in respect of policy bought in your own name, spouse name or in the name of children (deduction is allowed for all children irrespective of the fact whether they are minor or major, dependent or independent and married or unmarried). There are certain clauses applicable for the deductions.

  • In case your term insurance policy is issued on or before 31st March 2012, your tax deduction eligibility is limited to 20% of the sum assured.
  • In case your term insurance policy is issued on or after 1st April 2012, your tax deduction eligibility gets restricted to 10% of the sum assured.
  • In the case of disabilities as mentioned in Section 80U or suffering from any ailments listed under Section 80DDB of the Income Tax Act, 1961, then the 10% mentioned above would be increased to 15%.

PS: However, for term insurance plans, the sum assured would always be higher than 10 times the premium.

  • Maturity Benefit: Tax exemption U/S 10(10)D

The maturity benefit of any life insurance policy is tax free in the hands of the policyholder under section 10(10)D of the Income Tax Act 1961 provided the premium is at least 10% of the sum assured for policies issued before 1st April 2012 and at least 20% of the sum assured after that. However, most term plans do not have maturity benefit. Thus, it applies only to those few term plans which have a maturity benefit.

For example, Term Plan with Return of Premium. In this variant of Term Plan, the total premiums paid during the policy tenure is returned to the policyholder on policy maturity as Maturity Benefit. In this case, the maturity benefit would be tax-free U/S 10(10)D provided the sum assured is more than 10 times the premium paid, which is usually the case in Term Plans.

Read more about types of life insurance plans.

  • Death Benefit: Tax-free in the hands of the beneficiaries

The death benefit, a huge lump sum amount paid out under term insurance (i.e. sum assured chosen by you), is fully exempt from income tax in the hands of beneficiaries. There is no restriction on the amount received by the beneficiaries as a death benefit.

  • Health Rider: Tax exemption U/S 80D

In case you have availed critical illness or an additional accidental death rider or any other health rider under your term insurance plan; then you can claim tax deductions under Section 80D on the additional premium that you are paying for the rider. Section 80D of the Income Tax Act, 1961 allows tax benefits on premiums paid for health insurance. However, the maximum cap for tax deduction is INR. 25000 p.a.

Though how to save tax would be an integral part of any investments that you make, it’s not the only criteria. Buying term insurance is a crucial financial decision. Hence, it’s important to consider various other important elements like exploring a suitable plan, selection of right coverage and the right term etc. Ensuring family’s future financial stability is the primary purpose of availing any term insurance plan. Tax saving benefit is an added advantage for availing the term insurance plan.

Conclusion

With the host of tax benefits offered, term insurance is definitely considered as the most effective tax saving scheme. Take help of online tax calculators to strategize your taxes while you make insurance and investment decisions. Though the primary goal is to adequately insure yourself, knowing all the tax provisions and planning taxes with every investment you make can help you save more!

Read more Do you know all the tax benefit of your life insurance policy

Read more Know all the tax benefits of life insurance policy before buying

World Cancer day – Taking the Cancer fight head-on

Cancer is one of the leading causes of death in India. According to a report by National Institute for Cancer Prevention and Research (NICPR), 2.25 million people are currently living with the disease and risk of developing cancer before the age of 75 is 9.81% for males and 9.42% for females. Yet, in spite of these alarming statistics, doctors and researchers in India and across the world opine that incidence of cancer can drop gradually provided a holistic approach is taken towards this disease that includes prevention, early detection, and treatment.

What are the major reasons for cancer?

Let us first find out how cancer is caused. The dreaded disease refers to the condition when cells of the body keep dividing abnormally due to certain changes caused to the genes. These genetic changes can be inherited or caused by damage to DNA through external factors like tobacco, alcohol, radiation and internal ones like age, obesity, hormones.

Can cancer be prevented?

Yes. According to the National Cancer Institute, USA, there are 100 types of cancers and most of them can be prevented if we pay attention to the following:

  1. Say NO to tobacco in any form
  2. Maintain a healthy lifestyle through a balanced diet and proper exercise
  3. Stay protected by taking required vaccinations and having safe sex

How can cancer be detected and treated?

Cancer can be detected early if we pay attention to some warning signs like unusual bleeding or discharge from any point in the body, sudden weight loss and appetite loss, incessant cough or sudden change of voice, chronic indigestion, a sore that refuses to heal, change in bladder or bowel habits, unusual lumps on the body. Consulting a specialist is of paramount importance once any of these signs sets in.

Next enters the role of treatment. Surgery, chemotherapy, radiation therapy or a combination of these can be used to treat a cancer patient. When detected at an early stage, cancer can be cured, with the patient than having a normal life expectancy. However, this treatment comes at a very high price; the financial strain being the primary cause for trauma in the patient. Herein lies the need for insurance.

What are the insurance options available?

Cancer insurance policies offer financial assistance to cancer patients and thereby help to mitigate both mental and financial trauma substantially. There are 3 options for taking cancer insurance.

  1. Stand-alone cancer policy – There is still no evidence to suggest that a particular person will/will not get afflicted by cancer in the future. The incidence of cancer is unpredictable. Hence, it makes perfect sense to opt for a cancer policy early in life. This policy covers costs related to cancer diagnosis and treatment and the pay-out is given as a lump sum. A few insurance companies offer cancer policies that cover all stages of major types of cancer and can be purchased both online and offline.
  2. Critical illness policy – This policy covers some major illnesses like stroke, renal failure, cardiac arrests, paralysis, etc, with cancer also constituting one of them. Such policies cover a few types of cancer at the advanced stage only and can be purchased online or offline as individual policies. This policy too should be opted for at an early age when the risk level is less. The biggest advantage of this policy is that it covers many other illnesses apart from cancer for the same investment.
  3. Critical illness rider – A critical illness rider can be purchased with existing health or life insurance policy. It is cheaper but does not cover cancer at the early stage.

Is there a support system for cancer patients?

The diagnosis of cancer can seem like a bolt of lightning that destroys the very will to live. Realizing the extent of fear and trauma that cancer instills, many NGOs, hospitals and support groups are coming forward to help bolster the patient’s courage and improve his quality of life while the treatment is in progress. Counseling sessions are held where patients and their family members are motivated to overcome the challenges. Cancer survivors speak about their experiences and how they have effectively vanquished the disease. Organizations like the Tata Trust are working to build awareness around substances that increase the risk of cancer. Some hospitals are joining hands with celebrity chefs to come up with nutritious and tasty meal options for cancer-afflicted children.

The goal of all these valiant measures is to send a very important message – that getting scared and losing faith is not the way to fight cancer. The only option is to be prepared – mentally, physically and financially – and never give the disease the upper hand. The fight is on; and may the musketeer always win.

Read more about Life insurance at every stage of your life

Read more about Difference between critical illness and life insurance policy

Read more about Benefits of critical illness policy

 

Budget 2020- How it has impacted your finances?

Everyone had huge expectations from the Interim Union Budget 2020, especially because there hasn’t been any change in the last year in the slab. Let us analyse what are the new changes and how the new budget will impact us.

Changes in the Tax Slab:

^ The health and education cess = 3% of the Income Tax in the year 2016-17
*The health and education cess = 3% of the Income Tax in the year 2017-18 and 4% in the year 2018-19
** The health and education cess = 4% of the Income Tax in the year 2016-17

NO CHANGE in the deductions for Investments:

  • Investments U/S 80C: Rs 1.50 lakhs p.a.
  • Investments U/S 80C:
    1. Life Insurance
    2. Provident Fund
    3. ELSS (Equity linked savings scheme)
    4. Bank 5-year FD
    5. School Tuition Fees
    6. Home Loan Principal repayment
    7. NPS
  • Total Deduction for NPS is Rs 2 lakhs p.a. where:
    1. 60% of the corpus can be withdrawn tax-free
    2. Mandatory to purchase annuity from the remaining 40% of the corpus
  • 80D investments:
    1. Rs 25,000 for self, spouse and children
    2. For dependent parents it is Rs 25,000 p.a. if they are <60 years of age and Rs 50,000 p.a. if they are 60 years or more
  • Deduction on home loan interest= Rs 2 lakhs U/S 24B
  • Only Rs 2 lakhs of loss can be set-off against income of FY18
  • Long Term Capital Gain tax for capital gains > Rs 1 lakh p.a. for Equity and Equity Mutual Funds levied at 10% p.a. Gains before 31st Jan, 2018 is grandfathered

 

Impact of the changes on your Income:

P.S: For taxable income more than INR 5 lakhs, after the deductions for 80C, 80D, Home Loan, Donations, etc. there is NO change in the tax slab. This budget has given a tax “rebate” to people with annual income of INR 5 lakhs or less and has not increased the exemption slab for all. So, for people with higher income, the tax slab remains unchanged!

 

Some of the other major changes can be listed as:
Savings and Health:

  1. Standard Deduction re-introduced of Rs 40,000 p.a. and replaced Rs 19,200 of allowance and Rs 18,000 of medical reimbursement now increased to Rs 50,000 p.a.
    How does it impact?
    Salaried people will get an additional deduction of Rs 10,000 from their income under the heads of medical bills, transport, etc.
  2. Ceiling Limit of TDS u/s 194A has increased from INR 10,000 to INR 40,000
    How does it impact?
    For people who earn interest from Bank and Post Office Small Saving Deposits, TDS deduction slab has been raised from the current level of INR 10,000 to INR 40,000
  3. 2% interest relief on loan for MSME GST registered person
    How does it impact?
    Helps small traders and MSME registered organizations with a relief in interest for availing loans.
  4. More fund allocated towards Government aided health schemes like Ayushman Bharat, etc.
    How does it impact?
    Better facilities and reach are expected and thus a higher utilization of the insurance.

 

Post Retirement benefit

  1. Tax free Gratuity limit increase to 20 Lakhs from 10 Lakhs
  2. Mega Pension Yojana, namely Pradhan Mantri Shram Yogi Mandhan, to provide assured monthly pension of INR 3000 per month, with contribution of INR 100 per month, for workers in unorganised sector after 60 years of age.

 

Real Estate:

  1. TDS on Home Rent with Ceiling Limit of TDS u/s 194 has increased from INR 1,80,000 to INR 2,40,000 p.a.
  2. Tax exempted on notional rent on a second self-occupied house
  3. Capital tax Benefit u/s 54 has increased from investment in one residential house to two residential houses, i.e. Benefit of rollover of capital tax gains to be increased from investment in one residential house to that in two residential houses, for a taxpayer having capital gains up to 2 crore rupees can be exercised once in a lifetime.

 

Summary of Income Tax Benefits:
budget 2020 summary of income tax benefit
Summary of Impact on Real Estate:
budget 2020 income tax benefit
Overall this budget has been quite a populist budget and has something for the middle class and for the small businesses and salaried people as well. However, the budget has dampened the expectations of the increase in Tax Slab for the overall population.