By Dr Arindam Banerjee
Getting ready for taxes is a big part of making a full financial plan. Getting taxes lowered should be a big part of financial planning. Let’s explore some of the ways to maximise tax efficiency in an investment portfolio.
Fixed Deposits (FD) and Tax Savings
Fixed deposits (FD) can help us get up to Rs 1,50,000 tax break every year. Section 80C of the Income Tax Act allows a tax break through FD schemes. One of the rules of tax-saving FDs is that you can’t take the money out before 5 years have passed. After the first five years are up, there is also a chance to add three more years to the deal. You have to pay a 10 per cent tax on interest income over Rs 40,000 a year or Rs 50,000 if you are a senior person.
Public Provident Fund (PPF)
Public Provider Fund (PPF) offers another avenue for tax savings. You can open a PPF account at any post office or public or private bank store. Similar to the FD, PPF account too offers a tax break of up to Rs 1,50,000 per financial year.
National Savings Certificate (NSC)
Let’s now talk about the National Savings Certificate (NSC). Under section 80C of the Income Tax Act lets you save up to Rs 1,50,000 a year on taxes through investments in NSCs.
Senior Citizen Savings Scheme (SCSS)
Senior citizens can also avail tax savings up to Rs 1,50,000 through investments in schemes such as Senior Citizen Savings Scheme, (SCSS).
Health Insurance (Section 80D)
Health insurance plans such as Medicare. Medical coverage bills pre and post hospitalisation are covered under Section 80D of the Income Tax Act, allowing a tax break up to Rs 15,000 (Rs 20,000 for older people) in coverage costs. A member can get a tax break of up to Rs 35,000 if he pays their Rs 20,000 premiums and his own Rs 15,000 premiums. Also, you don’t have to pay taxes on the money you get when your critical illness policy ends.
National Pension System (NPS)
The much spoken about National Pension System (NPS) is one of the best ways for Indians to save tax money. Part 80CCD of the Income Tax Act states that the gifts to the NPS are tax-deductible up to Rs 150,000 in tax breaks. Any Indian citizen from 18 to 60 years old can put money into it. Stocks, bonds, and government bonds are bought with the money that comes into the NPS.
Mutual Funds – ELSS
Any portfolio without mutual funds is incomplete. Investing in mutual funds such as ELSS (Equity Linked Savings Scheme) allows tax breaks up to Rs 1,50,000 under 80C.
Education Loan Benefits
Another way to save tax is to secure an education loan for school. You can deduct the interest you pay on your student loans from your taxes. If you, your partner, or your children took out a school loan, you can get this tax break. Not only that, but you can deduct any amount of interest you pay on a school loan from your taxes. Getting an education loan could be the best way to partly manage your tax.
Home Loan Benefits
Additionally, 24b of the tax code allows to claim tax benefit on the interest on a home loan. You can write off all of your interest costs when you rent out your home. After the work is done, the interest that was due during that time can be claimed 5 times in equal amounts. This can also go all the way up to Rs 2,000,000. Part 80EE of the Income Tax Act lets you avail more tax breaks if you buy your first home. You can write off up to Rs 50,000 in interest on your home loan for every year that you use it. Taxpayers can deduct more than 2,000,000 for houses they own and live in.
Life Insurance and ULIPs
Life insurance can save you tax money in a number of ways. The premium you pay for these plans may help you save money on taxes up to Rs 1,50,000 a year, but your premium must not be more than 10 per cent of the amount of the promised death benefit. Section 80C of the Income Tax Act allows a tax break up to Rs 1,50,000 per financial year on Unit Linked Insurance Plan (ULIP) premium. ULIP is one of the best ways for Indians to save tax money.
Employee Provident Fund (EPF)
Employee Provident Fund (EPF) is another way to save money for retirement. Section 80C lets you get a tax break for the interest you pay on this plan. Capital market instruments such as bonds can help you save money on taxes up to Rs 20,000 as an investment under section 80CCF.
Bonds and Capital Market Instruments
Indians can save a lot on their income tax through various available investment avenues. Most of them are taken care of by Section 80C.
So, you should only choose the tax-saving options that fit your business goals and how much risk you are willing to take. In addition, you should be careful when reading the rules you need to follow to get the tax breaks. Put your money into safe things for the future. Getting the right family insurance plans is also important to protect your money. Right now, buy family safety plans to make sure the future is safe for your family.
(The author is Professor (Finance) & Program Director – Master of Applied Finance & Wealth Management at SP Jain School of Global Management)
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