Tax planning is the analysis of one’s financial situation from a tax efficiency point of view so as to plan one’s finances in the most optimized manner. Tax planning allows a taxpayer to make the best use of the various tax exemptions, deductions and benefits to minimize their tax liability over a financial year. Tax planning is a legal way of reducing income tax liabilities, however caution has to be maintained to ensure that the taxpayer isn’t knowingly indulging in tax evasion or tax avoidance.
Life Insurance : All life insurance premium payments, include those paid for unit linked insurance plans, are also eligible for tax benefits under section 80C. Even if your policy covers other family members, you can claim the tax benefits for the premiums paid. The limit for claiming these benefits is Rs. 1.5 lakhs. This means that if you make no other investments but pay Rs. 2 lakh towards a life insurance policy then Rs. 1.5 lakh out of it will be eligible for tax benefits. This benefit will also only apply if the premium is paid by you, not if your wife or husband or parents pay the premium.
Home Loan Payments :When you pay a home loan EMI, there are two major components to it; the principal and the interest. Under section 80C you can claim tax benefits on the principal paid. You can also claim benefits under section 24.
Mutual Fund Investments (ELSS) : When you invest in a mutual fund, particularly an equity linked savings scheme or a tax saving mutual fund, the amount invested is eligible for tax exemption under this section. These mutual funds come with a lock in period of 3 years.
Infrastructure Bonds : These are bonds that are issued by infrastructure companies like Infrastructure Development Finance Company and India Infrastructure Finance Company. They offer an interest on the money invested with them and the investments made in the tax saving infrastructure bonds are eligible for tax benefits.
Post Office Time Deposit : Just like fixed deposits, time deposits held at post office also are eligible for tax benefits under this section. These deposits come with an option of a 5 year time deposit where investments become eligible for benefits. These deposits also offer attractive interest rates in excess of 8% per annum however it can change at any time.
Education Expenses : School fee is not cheap these days and for that reason, when you do pay it you can claim tax benefits on the amount that you have paid. The conditions that apply in this investment are that it is available only for two children, the school cannot be outside India and the tuition fee is the only payment that is eligible.
Investment in NPS (National Pension Scheme)
₹25,000 – Below 60 years
₹50,000 – Above 60 years
Treatment of Serious Disease
₹ 1,00,000 – for Senior Citizen
₹ 40,000 – for Others
Payment of interest on Home Loan
Payment of interest on Education Loan
Physically Disability Tax Payer
₹ 75,000 – Normal Disability (40% or more disability )
₹ 1,25,000 – Severe Disability (80% or more disability )
Donation to Charitable Institutions
Donation to Scientific Research
Donation to Political Parties
House Rent in case HRA is not part of salary