A large number of people pay
a huge sum of money as income tax every year. This is due to the lack of
financial planning. The income tax Act enables certain deductions that are
claimed while filing the return. With the right investment plan, you can save a
large amount of money on income tax. We are discussing certain ways that will
help to reduce your income tax in 2021.
1.
Start saving
money for retirement- It is never too late to initiate retirement planning. The
pension plans are available for deductions under Section 80 C. The payments
received as annuities or lump sums are partially or fully taxable. You will
find traditional plans for savings while pension ones come with a large range
of options.
There
are many ULIPs plans – Unit-linked Insurance Plans that come with advantages.
In this plan, you can invest monthly as assets of your own choice and save the
remaining amount for retirement. You can save the desired amount of money in
this plan provided that the limit of the premium is not crossing 1.5 lakhs.
2.
Get insured- You
can reduce income tax by investing in life insurance. Section 80 C allows
deductions on payout and premiums of life term insurance. The premium is not
eligible for the tax if the total amount is under 1.5 lakhs. Also, section 10 (10 D) allows the exemption
from tax on the payment received under life insurance.
3.
Take an
education loan- If you take any kind of loan for your spouse, children, and own
then it is also a tax-deductible investment. The education loans are exempted
from tax under the 80 E section. The premiums of an amount less than 1.5 lakhs
are eligible for tax benefit. The individual taxpayers are eligible for taking
this benefit. Although, it is not suitable for Hindu Undivided families.
4.
Market-linked
instruments- National Pension Schemes ( NPS), Equity- Linked Saving schemes (
ELSS) and Mutual funds ( MFs), and ULIPS are all market-linked schemes. They
also are exempted from the income tax act. If you invest an amount below 1.5
lakhs in ULIPS with 3 year lock-in period then there is no deduction of income
tax. However, the fixed instruments such as recurring and fixed deposits are
taxable when the amount reaches maturity.
5.
Go for hoe
loans- The home loans may save your tax money.
If you go for a home loan then the tax deduction can be claimed on the
principal amount. You are also eligible for deductions on the interest paid for
home loans.
From the current financial
year, many existing exemptions and deductions will be removed from Income Tax
Act. Around 70 of 100 deductions will be removed to simplify tax laws.
Conclusion
If you are planning to
invest in 2021 then take note of important dates. You can make your investments
in any policy that is beneficial for you before 31st march 2021. So,
don’t wait much just invest your money.
