Every tax-payer wishes to save money wherever possible. Paying income tax is inevitable if you are an earning individual. It can be the source of substantial financial stress for you if you need to pay a significant amount as taxes. It is often challenging to manage the income tax payment at the end of the year. You can avoid this stress with careful financial planning to maximize your savings. You can save a reasonable amount by planning for taxes appropriately. There are several sections in the Income Tax Act that allow legal measures for maximum tax saving.
Understanding the terms and conditions of the income tax system is essential because it enables you to identify various investments to save tax. Section 80C, 80D, 80CCD (1B), and 24 (b) are some of the most common sections covering these tax-saving investments.
Here are three ways to save income tax that you might not know:
1. Life Insurance
Life insurance policies have multiple benefits to offer, and tax saving is one of them. When you purchase this policy, you pay an annual premium for it, which is eligible for tax deduction under Section 80C. However, the tax deduction is subject to specific terms. For example, if the policy has been issued after 1st April 2012, the premium should not exceed 10% of the sum assured to be eligible for the tax deduction. Furthermore, the policies issued before that date should have a premium not exceeding 20% of the sum assured to claim tax benefits.
Different types of life insurance policies can be used as wise investments to save tax. Depending on the policy you choose, tax implications may vary. If you want to buy a plan, you must ascertain that it allows maximum tax savings. It is possible to check how much premium you need to pay to get a specific sum assured using online life insurance premium calculators. Also, make sure you buy life insurance from a reputable insurer like Max Life Insurance. They are known for their high claim settlement ratio.
2. Health Insurance
Health risks are on the rise, and so are the costs of medical treatment. In such situations, buying health insurance has become an essential need. When you insure your health, you can rest assured that finances won’t be an additional cause of stress in medical emergencies. The benefits of medical insurance do not end there. The annual premium you pay for the policy is eligible for a tax deduction. Likewise, you can get tax benefits on preventive health-care check-ups, health insurance premiums for guardians, depending on your policy’s terms.
There are financial caps on the maximum tax saving, depending on the type of health insurance policy you buy.
3. ULIPs
Unit Linked Insurance Plan is more like a grouping of investment and insurance. Most insurance companies offer ULIP, which is an excellent investment to save tax. Similar to an insurance policy, you invest a specific amount in ULIP, a portion of which goes into buying life insurance while the rest is invested in various equity and debt schemes, depending on your choice. The conditions to get tax benefits with ULIPs are similar to that of a life insurance cover. The maximum tax saving cap of life insurance policies is also applicable to ULIPs. They are often said to be similar to mutual funds but offer the freedom to modify the proportion of fund investment in different schemes.
The unique benefits of ULIP make it an ideal instrument for investment as well as to maximize tax saving.
Not knowing about various ways to save taxes may make you pay more than you should. Most taxpayers are unaware of the legitimate methods to get tax rebates. Therefore, you must familiarize yourself with different investments to save tax. It always helps to plan financially in advance to maximize tax saving.
This post was published on March 13, 2020 6:20 pm