How To Make Sure That Your Tax Saving Exercise Is In Line With Your Life Goals

The tax-saving season for the financial year 2019-20 is on. Rather than waiting for the last minute, one should ideally do the tax planning at the start of the FY.

- Sanjeev Puri

With the last six months of this FY, it is still time for those who have yet not started the tax-saving exercise. Proper planning for tax savings, not only reduces the tax liability but also helps save towards the various goals arsing at different life stages. Tax saving exercise is also an important financial planning tool.

Planning one’s finances has the best result when it helps one achieve the desired goals. Plans which are made on ad-hoc basis or for a temporary goal or towards an ill-conceived objective are not of much help. There are several tools to achieve the goals through a proper financial plan, one of which is the tax-saving tool. By proper planning for tax savings, one not only reduces the tax liability but also save towards the various goals arsing at different life stages.

The Income Tax act provides for certain deductions that an individual may claim and thus reduce the gross total income thereby reducing you tax liability. These benefits are largely confined to Section 80C of the Income Tax Act. According to Section 80C, an amount equal to the investment that you make in certain specified instruments or an expense that you incur up to a maximum of Rs 1.5 lakh in a financial year reduces your GTI by the same amount. This in effect, reduces your taxable liability and, therefore, the tax payable.

Under Section 80C, an amount equal to the investment that you make in certain specified instruments or if you incur any of the expenses specified under this section up to a maximum of Rs 1.5 lakh in a financial year reduces your gross total income (GTI) by the same amount. This, in effect, reduces your taxable income and thereby reduces the tax liability. For example, if your GTI is Rs 10.5 lakh and you make investment of Rs 1.5 lakh in any of the specified instrument, the GTI gets reduced by Rs 1.5 lakh and stands at Rs 9 lakh. The taxable income becomes Rs 9 lakh now and tax has to be paid on this amount.