Grow Your Savings Through Smart Tax Planning
Every year, as it nears December, most people put their minds on saving the “dreaded” income tax. As a law-abiding citizen, one must file an income tax return annually to determine the tax obligations. As many as 8.45 crore taxpayers have been registered as of March 2019. In fact, among all states, Maharashtra tops with the highest number of tax filers, followed by Gujarat, Uttar Pradesh, Tamil Nadu and West Bengal.
In most developed countries including US and other richer nations, the tax component of individuals are far higher. They also do not have as many advantages of tax deduction schemes as we have in India. Most countries, including India, employ a progressive tax system, in which higher-income earners pay a higher tax rate, in comparison to their low-income counterparts.
Here’s a look at the Income Tax slabs for the Assessment Year 2019-20:
Tax Deductions Allowed in India
i) Deductions on Investment
The government allows for certain deductions to save tax, at the end of every financial year. It is essential to keep yourself informed of all the deductions, rebates and concessions to pay the least amount of tax on your total income. Ideally, it is advised to start tax planning at the start of every financial year to gain maximum benefit.
In India, you can claim a tax deduction up to Rs 1.5 lakh of your total income under section 80C. These are the investments specified: Public Provident Fund, tax saving mutual funds, tax saving fixed deposit, National Savings Certificate, premium on life insurance policy, ULIP (Unit linked Plans)and Employees Provident Fund.
We also have Section 80CCC that provides a deduction for any amount paid or deposited towards receiving annuity from insurance.
Further, under Section 80AA, deduction is allowed with respect to any income that is earned by way of dividends from a domestic company (this is included in the gross total income of the assessee.
ii) Income Tax Deduction for Interest on Home Loan
The interest portion of the Equated Monthly Installments paid for the year can be claimed as a deduction from your total income up to a maximum of Rs 2 lakhs under Section 24. From Assessment Year 2018-19 onwards, the maximum deduction for interest paid on Self Occupied house property is Rs 2 lakhs.
iii) Tax deduction on Medical Insurance
In India, as an individual or Hindu Undivided Family, you can claim a deduction of Rs 25,000 under Section 80D for yourself, spouse and dependent children. There’s also an additional deduction for insurance of parents, up to Rs 25,000, if they are below 60 years of age. If they are above 60, the deduction amount is Rs 50,000.
For instance, a health insurance policy from HDFC Life can provide a range of tax benefits. The premium paid for a Health Insurance policy can be deducted from the total income under Section 80D of the Income Tax Act. The tax deduction under Section 80D is also allowed for making a payment to purchase or renew a Health Insurance policy on self, spouse, dependent parents or dependent children.
These are ways and means to maximize our tax benefits. But any such analysis would be incomplete without taking a look at Unit Linked Insurance Plans in India, one of our strongest options to save tax.
Unit-Linked Insurance Plans are fast becoming one of the most favoured instruments to save taxes. They have a minimum lock-in period of five years and make for an ideal investment avenue. ULIPs in India are affordable, offer diversified return options, and also multiple switches between available fund options. According to your risk appetite, choose a plan you think works best for you that will in turn offer you stable returns over a period. Besides the benefits of financial returns, one of the most attractive features of ULIPs is the tax benefits they offer, much to the advantage of the policy subscriber. HDFC Life Click 2 Wealth offers this and much more!
Paying your taxes sincerely and on time is your patriotic duty. Utilise these tax benefit schemes to save your money. Pay more attention to the act of tax planning. For any assistance, there’s always HDFC Life you can count on.
This content was produced in partnership with HDFC Life