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How to maximize your tax savings

tax-savingMany people who work hard to earn money are ignorant of tax saving planning hence they end up paying higher tax even though they can save much more if they have some basic knowledge of tax structure.Here are the best ways to save your taxes.

1.Hidden Tax saving under 80C

Many taxpayers are not aware of all the possible option under 80C.School fee of children,housing loan repayment,stamp duty and registration charges paid for house are exempted from tax.In a sense you can claim entire 1 lakh for tax deduction in these modes and may not want to invest anywhere else.

If investing under 80C always look for lock-in period based on requirement.All the 80C investments have lock-in period. PPF have 15 years of lock-in period also you can do a partial withdrawls fom PPF after 5 years.So a proper research should be done to decide your requirement and choose proper lock-in period depending on your needs.

ELSS comes with 3 year lock-in,fixed deposit with 5 year and for NPS lock-in period is till retirement.So before choosing any of these do take consideration of your needs.

2.Avail other tax deductions-

Taxpayers do not look beyond Sections 80C and 80D. If you or your dependant suffer from any of 10 specified diseases or physical disability,then you can claim INR 60000 under sections 80DD,80U and 80DDB.Donations to specifically mentioned charities are exempted from tax under Section 80G. Education loan interest is fully tax deductible under 80E.

3.Tax saving insurance way-

This is most common way of tax saving.The motto of life insurance is not investment as treated by many taxpayers.Life insurance is a must and everyone should take a life insurance cover.The main objective of life insurance is protecting your family’s financial future and not saving money from taxation.Life insurance tax saving should be taken such that it provides maximum cover with less premium.

When  you buy life insurance,you enter into long term recurring commitment and getting out of it is costly affair as you end up paying heavy surrender charges.So if someone chooses any traditional life insurance plan, the high premium could prevent from investing for other financial long term goals.Insurance should be seen as insurance and not as investment.The best plan here to buy term insurance rather than any endowment related insurance policies.

4.Taxes on different saving schemes-

Tax saving schemes are the most popular way of investement.But each of them have different treatment when taxation is concerned.Many people are ignorant of facts that income from fixed deposits,NSC’s and senior citizens saving scheme is fully taxable.

Though interest earned on the PPF is tax free.Hence the interest of 8.8% on PPF is better than interest of 8.5 to 9% offered on fixed deposit.

Insurance policies offer tax free income,but the pension recived from annual plans are taxable.

5.Investing In Equity-

There are tax saving mutual funds which are also called ELSS.Many people invest their large portion of money into ELSS in the last few days of financial year.It is a big risk to invest huge amount of money in ELSS as losses could be significant as these are equity based products.Investment in equity should be distributed through out year to get better benefits and not investing in the end of financial year.Any investment related to equity like ULIP,ELSS etc which saves tax should be avoided in last moment.

 

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