Budget 2020 announced an alternative tax regime offering lower tax rates; however, you need to forego several deductions and exemptions available under the old regime. To continue enjoying tax benefits, you may choose to file returns under the old tax regime. Here are some smart tips to reduce your tax liability.
Income Tax Act, 1961 – Section 80 investments You can save up to INR 1.5 lakh per year under section 80C when you invest in certain financial products like insurance, fixed deposits (FDs), and more. You can additionally save INR 50,000 per annum by investing in National Pension System (NPS) under section 80CCD (1B).Moreover, section 80D allows a maximum deduction of INR 100,000 paid as medical insurance. This is available for medical insurance premium paid for self, spouse, dependent children, and senior parents.You can also avail of home loan interest and principal deductions under different sections of the Income Tax Act, 1961.Let us evaluate the various options in detail.
In addition to the benefits offered by insurance, the premium paid is eligible for tax deductions. Life insurance not only offers coverage under unforeseen circumstances, but the premium is also tax-deductible under section 80C. Health insurance premium as mentioned above offers tax benefits under section 80D. Moreover, unit-linked insurance plans (ULIPs) offer life cover as well as help earn returns on your investments. Although the returns are not guaranteed, the premium is eligible for section 80C deductions.
You can invest in multiple financial products to reduce your tax liability. Some of the available options are as follows:
- An equity-linked savings scheme (ELSS) is a type of mutual fund that invests in equity-related products. It comes with a three-year lock-in period and is eligible for section 80C benefits. However, the returns are not guaranteed and vary based on the market volatility.
- Home loan interest accrual and payment of up to INR 2 lakh can be claimed as a deduction under Section 24B. An additional deduction of INR 1.5 lakh is available under section 80EEA for the interest paid on home loans.
- Fixed deposit investments are eligible for tax benefits under section 80C. FDs come with a lock-in period of five years and offer a competitive rate of interest that allows you to earn favorable returns. They are offered by banks as well as non-banking financial companies (NBFCs). Some key fixed deposit benefits include low risk, stable returns, and the option to choose between cumulative and non-cumulative interest payouts.
If you have a considerable amount, you may opt for FDs to earn guaranteed returns over a period. Mahindra Finance is a popular NBFC that offers competitive FD interest rates. Visit their website to invest in these deposits and save tax like a pro.