The Income Tax Act 1961 devotes an entire section to Income Tax Deductions available to Indian tax payers. If we take note of the deductions and invest in the right products at a regular pace, we will inculcate financial discipline that will go a long way in building our financial health
What are the deductions available?
A tax payer must acquaint himself/herself in the various opportunities available for tax deductions under Income Tax Act. Regularly investing money is a better practice rather than rushing to invest in products at the last minute, before the March 31 deadline draws near. In that case, we are pushed to buy many products neither we understand nor that give us the desired benefits. So it is imperative to understand the avenues that can help us save tax, as well as help in our financial goals.
Life Insurance
Insurance premium up to a maximum of Rs.1.5 lakh, taken for coverage of self or family members is eligible for tax benefits under Sec 80 C of IT Act. You may take such insurance for yourself, spouse or children. If the annual premium does not exist 10 % of the sum assured, income tax will not be deducted from any amount payable as a gain from life insurance (except sum received under section 80 DD (3) or section 80DDA (3) or under a Keyman Insurance Policy).
Health Insurance
There is also a provision to save tax while covering yourself or your family members for health insurance. Sec 80D allows tax exemption for Rs.20,000 for premium paid towards health insurance. An additional benefit of Rs.15,000 is available for insuring your parents which could go up to Rs. 20,000 if any of them is a senior citizen. The premium must be paid by any form other than cash. A sum of Rs.5,000 may be claimed if it is payment for health check-ups.
Pension scheme
Deductions can be claimed for investing in the National Pension Scheme, subject to the same being up to 10 percent of salary under Sec 80 CCD (2) (other than sum received under section 80 DD (3) or section 80DDA (3) or under a Keyman Insurance Policy).
Exceptions
Be aware of the changing rules too. In the Budget 2014-15, a provision was introduced that said tax deduction at source (TDS) will also be applicable on the payouts made from life insurance policies.
Conclusion
These deductions, while providing protection to you and your family against life’s unforeseen emergencies take a load off you when needed. You know that each of your investments are serving a deliberate purpose and not just the goal of tax saving at the end of financial year.
By ensuring financial discipline and questioning the rationale behind each investment plan, you can build wealth and be financially secure after your retirement. Do not hesitate to question your investment advisor in order to avoid buying a policy that does not serve your need.
Remember, only an intelligent investor is a happy investor..!!
CAclubindia
