Planning your expenses and savings will not yield many benefits if you ignore the tax component. Saving tax is not an easy job. Hence, tax planning is as important as investment planning. In fact, one of the most effective ways to save tax is by investing, keeping tax liability in mind.
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Tax saving is not rocket science once you understand the following steps:
If you are to invest based on tax liability, the first point of reference is your net tax liability. You can arrive at this, after accounting for all tax deductions and exemptions. There are many online websites which help you do this. Keep in mind the benefits that you get from your employer like LTA, EPF, HRA, etc while assessing your net tax liability.
Don’t invest aimlessly. There are a plethora of investment avenues. But, not all investment options save you tax! If you are an aggressive investor, don’t hold yourself back from exploring the investment avenues available.
Be sure to spread your investments in non-tax saving and tax saving instruments in the right proportion. It is simple. First, ascertain your tax liability which will arise from the returns from non-tax saving instruments. Then, invest in tax saving instruments to the extent that tax liability will be set-off. Thereafter, clear up space for tax saving avenues only to the extent of your tax arising from non-tax saving avenues.
SEE ALSO: Fake Tax Claims Can Get You In Trouble
Most taxpayers are familiar with Section 80C and are very fond of it, only for the reason that it gives a lot of scopes to save tax. Be it 5 Year Post Office Time Deposit, EPF, VPF, PPF, ELSS or 5-year Tax Saving Fixed Deposits, all the returns arising from these are tax-exempt. So, go ahead and make the best out of Section 80C.
If you have availed an education loan, use it for tax deductions. Whether you are studying here or abroad, you can save tax on the interest paid on education loan, but be informed you can’t save tax on the principal.
Also, home loan offers you tax benefits. You can claim a tax deduction on interest, principal, and stamp duty paid towards your property. Be mindful of the maximum deduction. Following table illustrates the same:
This is a must for everyone, especially young earners. Health Insurance not only saves tax, it also costs less when you are young. This will keep you from raiding savings during health emergencies. You will be entitled to a tax deduction on premiums you pay for yourself + spouse + children + parents.
Invest on the lines of tax liability and build yourself an impressive and high yielding financial portfolio.
Be Wise, Get Rich.
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