With the bank accounts being linked to Aadhaar numbers, the income and the tax liability of every individual have attained transparency. The Government has taken to several fiscal reforms in the last one year to curb tax evasion. One way to keep your hard-earned money with yourself is by buying the appropriate tax saving investment instruments. Let’s look at some tax saving ideas for filing ITR in 2018.
Investment Options Under Section 80 (C)
Section 80 (C) of the Income Tax Act allows individuals to save taxes up to Rs. 1.5 Lakh through certain investments and payments. The investment options cater to investors with different risk appetite. For the ones hovering between moderate and high risk, equity-oriented tax saving schemes, which stand covered under Section 80 (C), could yield a high return. ELSS Mutual Fund is another option which allows investment in a lump sum as well as in SIP. ULIP offers exposure to equities too with the fund parked in both insurance and the stock market. However, it comes with a lock-in period relatively longer than the ELSS.
For investors with low-risk appetite, there are safer investment options such as PPF, tax saving FD, Sukanya Samridhi Yojna (SSY), NSC, and traditional Life Insurance policy. These investment options generate a relatively low return and come with a longer lock-in period but it is popular amongst risk-averse investors due to secured returns.Read more ↓
Payments including the annual premium for Life Insurance, tuition fees for up to two children and repayment of the principal of a loan are eligible for tax saving deductions under Section 80 (C).
Under Section 80 (D) of the Income Tax Act, if you are aged below 60 years, you could claim a deduction of up to Rs 25,000 for premiums paid toward Health Insurance policy. If you are aged above 60 years, you could claim up to Rs. 30,000. You are also allowed to claim a deduction for premium paid on health policy for a spouse, dependent children and parents. The maximum deduction allowed for the premium paid for self, spouse and the dependent children is Rs. 30,000. You can get an additional deduction of up to Rs. 30,000 for health insurance premium paid on behalf of your parents.
You can save taxes up to Rs. 50,000 under Section 80 (CCD), over and above the Rs.1.5 Lakh amount eligible under Section 80 (C). Investment in the National Pension Scheme is eligible for tax exemption under Section 80(CCD). This retirement scheme can help you save an additional amount of Rs 50,000.
Restructuring Of Salary
Salaried individuals can save taxes by restructuring their salary in a more tax-efficient manner. While negotiating an offer with your employer, go easy on the basic pay which is fully taxable and focus on allowances and perquisites. HRA, medical reimbursement, and allowances such as LTA, conveyance allowance, food allowance, etc. can help in reducing your tax liability. You could also get your salary structure checked by a tax expert before talking to your employer about restructuring your pay.
Use Indexation Benefits To Calculate Capital Gains
Return on assets such as gold and debt fund is often lower than what you get in hand if the inflation-adjusted price is not taken into consideration. For example, if the ROI is 7% and the inflation in that period is 5%, the real rate of return would be only 2%. So, the government allows you to calculate the capital gain along with indexation benefit, under which the inflation rate is taken into account. This reduces your tax liability on the capital gains.
The best way to reap benefits out of these options is by being consistent with investment through the year instead of getting into the last-minute rush.