Doesn't it irk you when a large chunk of your hard-earned money goes away in taxes? As you grow up the corporate ladder, the increase in your salary package is due to the years of hard-work that you have put in. So, you definitely wouldn't want to reduce it by paying taxes, right?The good news is, as your package increases, avenues to save tax increase as well.
If you have an annual income of more than Rs 10 lakhs, you fall in the 30% tax bracket according to the income tax slab (for the financial year 2017-18). By employing effective tax planning strategies, you can have more money to invest, spend, and save!Further, there are several tax saving instruments which can effectively guide to:
- Avail the tax benefits
- Make the right kind of tax-saving investments
- Know the taxability status
Following are the five smart tips to save tax if you belong to the high-income group with annual income above Rs10 lakhs:
1) Buy aTerm Insurance Plan to Get Benefits under Section 80C
Term Life insurance not only plays a crucial role by providing financial cover to your family in your absence, but it can also be used as a tax-saving tool.
You can avail the following tax benefits on a term life insurance plan:
- Under Section 80C, premium is tax-free up to Rs 1.5 lakh
- Under Section 10(10D), payout is tax-free
This is one of the first tax-saving tools that you must consider if you belong to the high-income group, which provides a large cover for a relatively small amount. For instance, a 30-year old non-smoker male has to pay less than Rs 700 a month to get Rs 1 crore coverage for 30 years.
2) Get the Benefits of Home Loan Interest and House Rent Allowance
If you have a home loan, you can claim a deduction up to Rs. 2 lakhs against the home loan interest payment. Or if you receive a house rent allowance (HRA) from your company, you can claim a deduction against it. You can claim the minimum of the following three for HRA:
- The HRA paid by your employer
- Actual rent paid minus 10% of basic salary
- 50% of salary, if living in a metro or 40% of the salary, in case of non-metro
3) Invest in ELSS Mutual Funds
Equity-linked savings schemes (ELSS) are the equity mutual funds with two differentiating features – Investment and Tax-saving.
The investment amount in them qualifies for tax benefit under Section 80C of the Income Tax Act, up to a limit of Rs 1.5 lakh a year. Further, the interest and maturity payout are also tax-free.
Since these products are linked to the equity market, they have investment risks, but the return potential is high too, which make them apt for long-term growth.
4) Avail Health Insurance Benefits under Section 80D
Buying a health insurance plan can help you cover expenses incurred from an accident or hospitalization. These medical life cover insurances are extremely cost-efficient as they cover the pre and post hospitalization expenses, depending on your sum insured.
Apart from getting the coverage against rising medical expenses, you can also avail the following tax benefits:
|
Scenarios |
Self, Spouse and Kids |
Parents (whether dependent or not) |
Total Tax Deduction |
|
Everyone in the family is below 60 |
Rs 25,000 |
Rs 25,000 |
Rs 50,000 |
|
Except parents, all family members are below 60 |
Rs 25,000 |
Rs 30,000 |
Rs 55,000 |
|
All family members are above 60 |
Rs 30,000 |
Rs 30,000 |
Rs 60,000 |
In addition, the expenses on preventive health check-ups are also tax-free up toRs 5,000. However, this benefit is within the maximum tax deduction limit, i.e.Rs 1.5 lakhs. Further, the payout of critical illness insurance policy is also tax-free under Section 80D.
5) Secure Your Sunset Years with a Pension Plan
If you want to avail regular flow of money after your retirement, opt for pension plans. While you invest in it to create a corpus for the future, you can also avail the following tax benefits:
- You can avail tax benefit up to Rs 1.5 lakh under Section 80CCC (sub-section of Section 80C)
- On maturity 1/3rd of the accumulated amount is tax-free
6) Take Part in Charity Work
Your good deeds can help you lighten your tax burden. A donation made towards certain charitable organizations enjoys tax relief under Section 80G. However, donations made in items, like medicines, food, etc.; do not get tax benefits.
Conclusion:
In addition to the investment products mentioned above, you can explore several other tax-saving instruments such as tax-free infrastructure bonds, 5-year bank fixed deposits, National Savings Certificate, Children's tuition fees etc. These can also help you save plenty of money that would otherwise be spent on taxes.
Start your tax-planning early each year as the risks of tax planning in a hurry later are manifold.
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