Income Tax Savings: To save tax, there are several options available under the Income Tax Act. But, in most of them, one needs to invest a certain amount of money and let the money get locked-in for a certain period. Tax saving is also possible even without making investments and these tax avenues are available under different Sections of the I-T Act. Let us see how one can save tax even without investing and in the process help build assets or cover various risks of life.
1. Tuition fees
For parents paying tuition fees for their children, the amount paid qualifies for deduction under section 80C of the I-T Act. However, such tax benefit is available only up to 2 children and up to Rs 1.5 lakh in a year. Tuition fees could be for any full-time education including any play school, pre-nursery and nursery classes in a government or private institution or in any registered university, college, school or educational institution based in India.
2. Home loan principal, interest
In a home loan EMI, the principal portion repaid during the year qualifies for deduction under section 80C within the cap of Rs 1.5 lakh, while the interest paid is deductible under section 24. Buying a home by taking a home loan helps in not only reducing tax but also owning the home as and when the loan outstanding is fully repaid to the lender. A home loan is perhaps the only big-ticket loan that is considered as a constructive loan as it helps to create a capital asset in the long run.
3. Health premium
Even before one starts to save, one should make sure to buy health insurance for self and family members. By paying a fraction of the sum insured as premium, one is assured that he or she does not have to dip into existing savings to meet hospitalisation cost. The premium up to Rs 25,000 and Rs 50,000 for senior citizens, is deductible under section 80D. If there is no hospitalisation during the year, there is a provision of no-claim bonus in health insurance plans. It is always suggested to renew them on time as certain illnesses are time-bound in these plans.
4. Term insurance premium
After health insurance, it’s important that one buys an adequate life insurance term plan. Term plans are pure insurance products wherein the sum assured is paid to the nominee on death during the term of the policy while on maturity nothing is paid to the policyholder. The premium qualifies for tax benefit under section 80C. The premium in term insurance plans is low and they provide high sum assured and one should ideally keep sum assured of at least ten times of annual income.
5. Education loan
If you take education for your children or even for the education of your spouse, there are tax benefits. Under section 80E, the interest paid is tax-deductible without any limit. However, the tax benefit has to be availed in eight assessment year by the individual.
It is not compulsory that one has to invest in any of the tax savers such as PPF, NSC, ELSS etc in order to save tax. One can make use of any of the above mentioned 5 tax savers and save tax even without investing. In fact, savings tax through tuition fees, home loan, health cover, term plan helps to strengthen your financial planning even before you start investing for your goals.