No matter your expenses and income, saving money on taxes is always at the top of the list for most people. Tax planning is essential to financial planning since, without it, you risk giving the government a sizable share of your income and returns (on a lighter note). Taxes can be avoided in many ways, and you should be aware of the same. Here are some tactics you might use per your age and stage of life. This is mainly why we all need online term plans.
1) ELSS (Equity Linked Savings Scheme): Equity funds and market-linked products such as the ELSS are excellent ways to take advantage of tax advantages. ELSS has a three-year lock-in period, which makes it the ideal solution for young people. Many tax-saving investment alternatives have a lock-in period, but this is the shortest. Moreover, as per Section 80C of the Income Tax Act of 1961, it is eligible for a deduction from taxable income of up to Rs.1,50,000.
2) Life insurance: Life insurance is a necessary investment, just as your medical insurance, that you should make as early as feasible. This investment strategy is tax-deductible up to Rs.1,50,000 as per Section 80C. In your 20s, you can purchase a term insurance plan for a reasonable premium, and at later stages of your life, the nominee may be altered, or the cover amount can be increased. What is a term plan? It is pure life coverage, where the insurance company pays the sum assured amount to the nominee(s) in case of the policyholder's untimely demise within the policy period. The death benefits are exempted from taxes under Section 10 (10D).
1) Home Loans: If you have a home loan, you could be qualified for a deduction as per Section 80C of the Income Tax Act of 1961 for the principal payments, subject to specific criteria and limitations. Remember that the maximum deduction allowed by Section 80C is Rs. 1,50,000. In addition, following Section 24 of the Income Tax Act of 1961, you may also deduct interest paid on a house loan for a given fiscal year.
2) Retirement Planning: According to experts, you should begin retirement planning whenever you receive your first salary. Yet, if you have not started yet, know that the 30s are an excellent age to think of retirement funds. The National Pension Plan is a great investment vehicle. You can deduct up to 1,50,000 from your taxable income by investing in this under Section 80CCD of the Income Tax Act of 1961. Other dedicated retirement plans are also offered under the aegis of life insurance. You can look at the same, along with ULIPs (unit-linked insurance plans) which combine insurance coverage and investments.
3) Upgrading Life Insurance Policy: In this stage of life, you may want to upgrade your life insurance or add additional beneficiaries per your professional and personal circumstances. As per Section 80C of the Income Tax Act of 1961, you may continue to deduct up to Rs. 1,50,000 from your taxable income.
1) Education Loan for your Child: Section 80E of the Income Tax Act of 1961 enables a deduction if you take out a loan for your child's higher education. For up to eight years, or until the loan's interest is paid, you can deduct the interest you pay on borrowed money for education (whichever is earlier).
2) Home Loan: Under certain terms and conditions, you may continue to claim a deduction for principal repayment on home loans as per Section 80C. Please be advised that the maximum deduction allowed as per Section 80C is Rs. 1,50,000. In addition, as per Section 24 of the "Income Tax Act, you may additionally deduct the interest you paid on a home loan for a given fiscal year.
3) Retirement Planning: With the short amount of time you have left, retirement planning is believed to be a crucial step more than ever. You can consider raising the NPS contribution or even other pension funds to receive the greatest benefits. You may deduct up to 1,50,000 from your taxable income by investing in NPS as per Section 80CCD. You can also scale up your investments in ULIPs by renewing them for long-term future returns to build a corpus for retirement and other goals.
1) House Loan: Pay off all home loan interest before you retire, as paying the interest after retirement could be difficult. Try and repay the home loan by making periodic prepayments and scaling up your EMI with increased income. Continue taking tax benefits till the time the home loan is active.
2) Child Education Loan: Since you and your child can both benefit from the tax advantages, you might think about taking a break from making interest payments and transferring responsibility to them. As per Section 80E of the Income Tax Act of 1961, they can make a deduction claim.
3) Pension Planning: You may consider organizing your withdrawals. Make sure you are aware of the tax consequences of the same. You should also consider options for getting your ULIP maturity benefit or benefits from other retirement plans in lump sum payouts plus monthly payouts.
In conclusion, every stage of your life is a good time to start saving taxes and accumulating wealth for the future. These tips will help you greatly in choosing a proper strategy based on your life stage.