A Quick Guide To Tax Saving

Tax planning should be a year-round activity, but if you haven’t started yet, here’s the low-down on options for maximising tax savings at the last minute.

- Avneet Kaur

AS NEW YEAR celebrations draw to a close, the clock starts ticking on another important milestone of the year – tax saving. Although this should be an ongoing exercise, most start thinking about this crucial aspect of financial planning late in the year. If you are among the late starters, here’s a last-minute guide to making the most of deductions and exemptions.

Start by taking a note of the tax saving expenses you already have like child’s tuition fee and home loan repayment. The next step is figuring out the best tax saving investment.

However, before starting, choose your tax regime. From FY2021, you have an option of paying tax under a concessional tax regime which disallows most deductions and exemptions. In both regimes, a rebate is available if your net taxable income is ₹5 lakh or less. “If you opt for deductions up to 20% of your income, the old regime is better. With higher income, it may no longer be possible for you to get to 20% deductions,” says Adhil Shetty, CEO, BankBazaar.com. After deciding, start with tax-saving expenses.

Expenses That Count

Tuition fee: School fee for up to two children qualifies for deduction of ₹1.50 lakh under Section 80C of the Income Tax (I-T) Act. The deduction is not available for donations, development fee and coaching fee.

Life insurance premium: Section 80C of the I-T Act allows up to ₹1.50 lakh deduction for premium paid for life insurance of self or spouse. The maturity amount is tax exempt, except in case of Ulips, where it is exempt only if annual premium of the policy is less than ₹2.5 lakh.