Do you fall under the category of taxpayers? If yes, then you should start your tax planning from the beginning of the financial year i.e. April month itself. This will not only enable you to take proper investment decisions but will also save you from the burden of lump sum investment for tax saving. Tax and investment expert Balwant Jain says that people buy life insurance policies in a hurry to save income tax at the end of the financial year. Life insurance policy should always be taken for insurance purpose and not for tax saving. According to Jain, while choosing tax saving options, it is important that you look at it along with your financial goals.
How to do Tax Planning?
Jain says that planning for income tax from the very beginning is not a difficult task and it also has many benefits. You can calculate which expenses are to be incurred in a year under Section 80C of the Income Tax Act. For example, how much money has to go towards tuition fees of children’s school, life insurance premium, public provident fund etc. in a year. The limit of section 80C is 1.5 lakh rupees, deduct the money going towards these items. Now you will know better how much money you have to invest under 80C.
Where to invest to save income tax?
Jain says that if you are young or you want to invest for the long term, then you can invest in Equity Linked Savings Scheme (ELSS) of Mutual Funds. ELSS has given 16 per cent returns in the last 10 years. In this, you should start investing through Systematic Investment Plan (SIP) from April itself. This will average out the mutual fund unit cost and reduce the impact of market volatility. Investing in equities for a long time is not very risky.
According to Jain, PPF is a great option for investors who do not want to take risk. The interest earned on PPF is also tax-free. One can invest in it to fulfill financial goals like higher education of children or their retirement. Similarly, if there is a daughter in the house and want to save money for her higher education or marriage, Sukanya Samriddhi Yojana is a good option on which 7.6 percent interest is being given at present. At present, the highest interest is getting on Sukanya Samriddhi Yojana in Small Savings Scheme.
SCSS is a good way to save tax for the elderly
Jain told that those who have crossed the age of 60 ie have retired, their PF is not deducted and tax saving options are limited. For such people, Senior Citizen Savings Scheme (ELSS) can be a good way to save tax. Currently, it is getting an interest of 7.4 percent and you can invest up to Rs 15 lakh in it. It comes under the purview of section 80C of the Income Tax Act.
Save extra Rs 50,000 in income tax by investing in NPS
Balwant Jain said that there are many options under section 80C and it is possible that many people have crossed the limit of 1.5 lakh rupees by making various expenses in a year. In such a situation, NPS i.e. National Pension System can give the benefit of additional deduction of Rs 50,000 in income tax. You can claim an additional deduction of Rs 50,000 under section 80CCD (1B) of the Income Tax Act. You can invest in it with the goal of retirement savings.