Get Smart About Your Tax Planning

Posted by Reena More on June 28th, 2019

Are you absolutely sure of how much tax you are liable to pay for the year? If you already have clarity - then you don’t need to worry about anything. However, if tax planning is jargon for you, or you’ve been investing to save taxes all this while, then this article may be of interest to you. We recommend you continue reading!

So, as the end of the year nears, there’s generally a mad scramble to get one’s finances and investments to avoid paying high taxes. What’s interesting to note, is that more than 49% of the total investments made in the ELSS category, happen in the last few months (March being the highest) of the financial year. (Source: Association of Mutual Funds in India)

A golden rule to follow in tax planning is to “Keep it Simple and Plan Ahead”.

But rarely do we follow this, don’t we? Most of our investments are done a few months before the tax filing period, with a clear objective to save taxes. In the rush of things, so many of us end up investing in such products, which goes without saying, helps save taxes - but why limit to just that when you can do so much more?

We strongly believe that tax planning doesn’t have to be a last minute trick to save some money; but in fact, it can be a planned opportunity to earn amazing returns while saving taxes. It should be done keeping your overall financial plans and goals in mind - to help you achieve your short, medium and long-term financial goals while saving taxes.

Want to know how you can go about doing that for yourself? The steps given below will ensure that you are on the right track of smart tax planning:

How can you take advantage of Smart Tax Planning?

Take advantages from the components of your salary

If you’re a salaried person, before you rush to make investments to save the taxes, we’d recommend that you browse through your salary structure. This is because, there are many components in your salary structure that would offer you the opportunity to leverage the exemptions under Section 80C. (Maximum deductible amount under Section 80C is ₹ 1.5 lacs) Here are a few possibilities:

1. If you have rented the house that you are living in, then you are eligible to claim a tax exemption for the rent that you’re paying with respect to the house rent allowance (HRA) u/s 10(13A).
2. If you’re investing in the Employees’ Provident Fund (EPF), then you can subtract this amount from the ₹. 1.5 lakhs.
3. If you’re paying school fees for children, then you can also use this to avail tax benefits for up to two children
4. If you have an ongoing home loan, you can avail tax exemption for the principal amount that you repay to your lender. You are also eligible for tax exemption for the interest paid, but that falls under Section 24 and can be exempted up to ₹. 2 lakhs
5. If you already have an ongoing life Insurance premiums, then you can also use these premium amounts to avail tax benefits under Section 80C. You don’t have to get another life insurance to avail the benefits.
6. Many companies offer a Leave Travel Allowance ( two trips in a block of 4 years ) with certain exemption limits such as:
1. Airfare of economy class by the shortest route or the amount spent, whichever is less will be considered when traveling by air
2. Air-conditioned first class rail fare by the shortest route or the amount spent, whichever is less will be considered when flying by rail
   

By taking care of just these, you’ll be able to reach the ₹. 1.5 lacs limit. However, in case if you are not able to save enough, there are plenty of other options that can help you save more taxes.

Make Investments in Deductible Options

➔     If you’re an employee then Section 80C is the best option for you to reduce your taxes and maximize the salary that you will take home. Under Section 80C, you can claim deductions up to ₹. 1,50,000 from your total income.

◆      Some of the best components that can help you save your taxes under Section 80C include -- ELSS, Tax Saving Mutual Funds, Tax Saving Fixed deposits, Public Provident Fund, Employee provident Fund, National Pension System, National Savings Certificate, and ULIP – Unit linked Insurance Plans.

◆      PPF (Public Provident Fund) Investments are generally the most favored one, as your investments are exempted from tax during investment, accumulation, and withdrawal. However, if you are risk-averse, then Tax Saving Fixed Deposits or ELSS can be ideal.

➔     Not only can you claim the principal amount that you are repaying towards the home loan, but you can also claim for tax benefits under section 24 for the interest that you are paying on the principle amount of the home loan of up to ₹. 2,00,000 in a financial year.

➔     Aside these, Section 80D and 80DDB can help you claim for tax deductions for the premiums you paid for the Medical Insurance of up to ₹. 25,000, and ₹. 40,000 for Medical Expenditure of self, spouse and dependent children.

File your Income Tax Returns Timely

Timely Income Tax Returns filing is the direct outcome of accurate tax planning. It is needless to say that the earlier you file ITR it is better, in several ways. There are only two ways to file your Income Tax Returns: 

➔     e-Filing through the Income Tax Website

➔     Traditional Filing at the local office of the Income Tax Department

Here are few points to note for tax planning:

➔     Note down the objectives of your investment, its gestation period, maturity, terms and conditions, the goals (short, mid, long term) that you want to achieve by investing.

➔     Make sure you invest in the products that help you achieve the goals that you have set.

➔     Before you decide on the investment opportunities, it is important to analyze different options and take a wise decision.

➔     Since this activity requires time to mature and show results, it is suggested that you don’t take hasty decisions of investing in tax saving schemes that don’t give you benefits in future

If you’re wise - you’ll make sure that you enhance your portfolio and reach your goals, while giving it a room to breathe and grown.