Tips to save more tax in 2021
It is that time of year when people start thinking about taxes and how to save. Individuals, whether in business or in a job, are constantly on the lookout for opportunities to save income tax. Absolutely no one likes to miss out on options that can save them money paid as tax. While different people prefer different ways of doing so, mostly they prefer to stick to methods they know. And thus, they miss out on more productive ways of saving tax. Many persons would want to know more ways and means of saving money paid as income tax.
There are quite a few different options to save tax, but the main thing is to do tax planning in a manner that helps you to save tax and also plan for the future.
1. Employee Provident Fund
The deduction from your monthly salary towards EPF can help you build a huge corpus for your retirement which often appears too distant. But it will come in the blink of an eye. Your investment in EPF has the potential to earn better returns compared to other debt investments as the returns are backed by the Government of India. If your contribution in EPF is reasonable then you can treat this as your debt allocation at the same time avail tax benefit under Section 80C. If you have any outstanding liabilities like home loan and/or your cash flow is getting too tight, then you may like to opt for minimum contribution towards EPF, else it can be looked at as a good investment option from long term benefit perspective. I
2. Public Provident Fund
PPF is similar to EPF in 1 manner - just like EPF, this investment, too, comes under the debt asset class and quite popular in the Section 80C category. Moreover, PPF is also a long-term investment that offers attractive rate of interest. PPF investment also offers you the flexibility to invest the amount that you wish to avail tax benefit, unlike EFP where the contribution is pre-decided at the beginning of the financial year. PPF is a good option for those investors who wish to have some allocation in debt with reasonable returns. The PPF accounts have 15 years lock-in compared to EPF which can be withdrawn only in case of change of job or at the time of retirement. If you wish to withdraw from PPF before 15 years, the scheme permits partial withdrawals from year 7 -- on completing 6 years of regular annual investments. Thus, offering some flexibility compared to EPF at the same time.
3. Life Insurance Premium
The life insurance premium also help you save tax under Section 80C. This aspect of tax saving requires proper advice, just like in sole proprietorship registration because you may end up buying any insurance policy to save tax. While there are different kind of insurance plans like Term insurance, Endowment, ULIP, etc., you have to decide what works as per your own requirement. The main point is to buy the right kind of insurance is to keep insurance and investment separate. The purpose of insurance is to replace the financial loss in case of unfortunate event of death and hence should not be looked like an investment by opting for Endowment, ULIP or any other insurance for sake of saving tax. Hence, it may make a perfect sense to get yourself adequately covered through a term plan and use the premium paid for tax benefit as well.
4. Equity Linked Saving Scheme/Tax Saving Funds
The ELSS funds are a good investment option. ELSS fall under the equities asset class and are a good option to invest and save tax. With a lock-in of 3 years an ELSS fund allows you to build wealth while claiming the tax deduction for investments made in the applicable year. If you are at the stage where your monthly investible surplus is limited and parallelly, you also have to invest for saving tax, then ELSS can work well for you. Here, you can create wealth by investing in equities and save tax at the same time. It offers maximum flexibility because of lock-in period of just 3 years, you can continue to hold that investment for longer period as well. For investors who are beginners, ELSS can take place of Equity Diversified Mutual Funds because as this can work in both ways for them, too. SIPs in ELSS can be a good tool to start tax planning from the beginning of the financial year. One thing to keep in mind for ELSS investment is that the fund will have to always have 80% invested in equities, thus increasing the risk when compared with other tax saving options.
There are quite a few different ways in which taxes can be saved. It is best to research well, speak to qualified experts and proceed further.