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.
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.