How to Save Tax Without Fresh Investment in FY 2019-20?

Save Tax Without Fresh Investment

When the month of March is comes to end, the only thing that comes to the mind of a salaried person is Tax Liability and Returns. Tax Liability is a duty levied by the government on your income which aids it to conduct public welfare activities. Tax planning here becomes a necessity as there are a lot Individuals who often pay tax more than they were required. The only reasons are the lack of weakness and knowledge about various deductions and schemes issued by the government in order to help the individuals avoiding excess tax liability. In common parlance, the best time for tax planning is in the starting of the year but people tend to procrastinate till the year end and end up either making errors in filing statements, paying more tax or filing belated returns. 

However the good news is that even if you have been careless towards planning tax the whole year you can still claim certain deductions on expenses that you have incurred in the normal course of your daily routine. Some of the deductions are-

Children’s Education & Hostel Allowance and Tuition Fees (Sec 80C & Sec 10(14))

The most common expense generally an individual incurs is the tuition fees of school, college or any other recognized institution for the purpose of full-time education of any two children of the employee is eligible for deduction.  Please note that any sum in the name of donation, development fees or capitation fees or any other payment of similar nature shall not eligible for deduction. In certain cases where the Children’s Education & Hostel Allowance is provided by the employer, such sum shall be added to the gross income of the individual & deduction of Rs 100 & Rs 300 per month per child upto 2 children shall be eligible.

Medical & Life Insurance (Sec 80D & Sec 80CCC)

Keeping in mind the uncertainty of human life and importance of medical and life insurance, the government has incorporated sums expended in such regards as an eligible deduction. Tax deduction based on health insurance premiums paid for individual, spouse, and dependent children shall be eligible for deduction up to Rs 25,000 per budgetary year.  Similarly, for investments made with respect to life insurance shall be eligible for deductions as per the related provisions. 

House loan and interest (Sec 80E, Sec 80E, Sec 24)

Employer’s contribution to NPS

Every individual whose employer has made contribution under section 80CCD(2) to the notified pension scheme which is not covered within the overall cap of Rs 1.5 lakh for cumulative deductions under sections 80C, 80CCC and 80CCD(1) shall be eligible for the deduction in accordance to the said section. Such deduction under is in addition to the cumulative deduction available under section 80C, where the overall limit is Rs 1.5 lakh, and 80CCD(1B) which is Rs 50,000.

Contribution made towards PPF and other approved schemes

There are a lot of regular investments that a common person invests in for which deductions is allowed under the Income Tax Act. This includes any deposits made with National Savings Certificate, Sukanya Samriddhi Account, Senior Citizen Savings Scheme 2004 (SCSS), NABARD Rural Bonds, 

Equity Linked Savings Schemes (ELSS)

ELSS is tax saving mutual fund that help the investors to save taxes up to Rs 1.5 lakh under Section 80C of the Income Tax Act. ELSS funds are considered ideal for new investors to start their investments in equity mutual funds. They, generally, have a mandatory lock-in period of three years and are among the shortest lock-in period among tax-saving investments permitted under Section 80C.

Standard deduction

A standard deduction up to Rs 50,000 is allowed for all salaried employees. This deduction is is mandatorily available and is considered by the employer while computing tax liability of each employee. The respective deduction is available at the time of filing ITR. However, while planning your taxes for FY 2019-20, you must consider standard deduction as well to compute your total tax liability.

Apart from all the deductions mentioned above there are multiple other deductions under the Income Tax Act 1962 which are available to an Individual.

Tax Planning: Best Tax Saving Options For Salaried Employees in 2020

Best Tax Saving Options For Salaried Employees

As this financial year is close to its end, one thing that comes to every individual’s mind is the phrase ‘Tax Liability’. On the other hand, given a choice, most of us wouldn’t even want to pay tax on the income we earn. But we should. As citizens of India, it is our rightful duty to pay taxes as we are also consumers of the country’s public infrastructure and facilities, and income tax is an important source of revenue for the government. So, it is our responsibility to contribute towards building and maintaining the public infrastructure. Paying income tax and filing income tax returns on time ensure that.

However, this amount of tax levy payable often consumes a large chunk of our disposable income but if we are smart enough we could save huge amounts of the same. Since, such amount of taxes paid are often high it is sensible to plan it before-hand.

According to the Income Tax Act, 1962 you can make certain investments and expenses which are in turn deducted from your taxable income.

Following is the list of ways how you can actually save tax by spending smartly:

  • Making an investment under Sec 80C (Limited to Rs 1.5 lakh) to reduce your taxable income
  • Buy Medical Insurance & claim a deduction up to Rs. 25,000 (Rs 50,000 for Senior Citizens) for medical insurance premium under Section 80D
  • Invest in various funds such as the ELSS funds, National Pension System (NPS), 5-Year Bank Fixed Deposit, Public Provident Fund (PPF) and National Savings Certificate
  • Claim deduction up to Rs 50,000 on Home Loan Interest under Section 80EE

What are the Investment Options under Sec 80C?

Section 80C of the Income Tax Act, 1962 is one of the most sought after sections as it grants deduction of various expenses. It provides many tax-saving options available mainly to individuals and HUFs in India. However, this deduction is limited up to Rs. 1.5 Lakh.

This section includes deductions payments made in regards to:

  • Life Insurance
  • Sukanya Samriddhi Yojana
  • Home Loan Principal Repayment
  • Investments made toward long-term government-approved infrastructure bonds.
  • Investments made under a government-approved equity savings scheme.
  • Payment of tuition fees
  • Contribution towards gratuity and EPF

Other Tax Savings options beyond Sec 80C

You might be surprised to know that alongside deductions in the amazing section of 80C, there are various other deductions which you can claim under Section 80 to save on income tax.

Following is the list of a few such: 

  • Expenditure on Medical Insurance & claim a deduction up to Rs. 25,000 (Rs 50,000 for Senior Citizens) for medical insurance premium
  • Deduction up to Rs 50,000 on home loan interest under Section 80EE
  • Payment of home loan and related interest.

5 Best Investment Options for a Salaried Person

There are various tax saving options for salaried persons available in the market, eligible for deduction in tax liability. Some of them are mentioned as follows-
Investment in fixed deposit and recurring deposits
Fixed Deposit and recurring deposits are one of the most sought after tax saving options, considered as the safest by its investors. In fixed deposit a lump-sum amount of money is kept aside for a specific period of years on which the investor earns an pre-stated amount of interest. Whereas, recurring deposit refers to the investment option where the user invest a small amount of money like INR 500 per month and owns returns in the form of interest on the maturity of the policy. One can save taxes under Section 80C by investing in tax-saving FDs. However, interest earned is taxable as per tax slab of the depositor. These tax-saving FDs come with a lock-in period of 5 years.

Investment in Mutual Funds

Mutual funds investment have started gaining much popularity due to its characteristics such as high liquidity, diversification of risk and management a professional. Mutual fund is a financial instrument where different investors pool their money for set objective. search fund is managed by a profession portfolio manager or an asset managing magic company (AMC). They offer multiple types of mutual fund options to invest in and each has their own objectives. Due to its various benefits and eligibility for tax deduction some advisors also call them as the best tax saving option. You can either make a lump sum investment or you can start an systematic investment plan (SIP). you can start your SIP with just INR 500 and for making lump sum investment you need to invest at least INR 5000.

Investment in Public Provident fund

Public Provident fund (PPF) is one of the tax saving options which is there in every tax advisor’s tax saving tips. PPFs are another type of safe investment options with almost zero risk because of the sovereign guarantee from the government. Here, the investor has the option to open an account and invest money for a set period of 15 years. The Finance Ministry reviews the interest rate every financial quarter basis the government bond yields. Maximum limit to invest in PPF is Rs 1.5 lakh in a financial year while the minimum amount is Rs 500. Unlike recurring deposits here you are not required to invest on an recurring basis. The investors can put in money whenever he finds suitable. The amount of the deposit can also vary time to time.

Investment in National Pension Scheme (NPS)

The national pension scheme is also being called the best saving plan available in the market as this amount is absolutely tax free. It is also one of the safest investment options because it is backed directly by the central government of India. Although, it is available for all the people but however it is mandatory for all government employees. one can start investing in NPS withy just INR 6000 annually or INR 500 monthly. The affordability and eligibility of tax deduction has made NPS one of the highly sought-after investment options.

Investment in Unit linked Insurance Plan

ULIP is an insurance plan which provides cover for its policyholders along with options to make qualified investments. It provides dual benefits to it’s Investors, wealth and insurance. Such plans are a hybrid of insurance and market linked investments. One part of the premium is invested towards ensuring your life while the other parts are invested and stocks add other financial instruments. Such plans have a locking period of 5 years. These investment plans are also eligible for tax deduction under section 80 C and are considered good for tax saving options for salaried persons.