6 Crucial Tax Planning Tips to Maximise Your Savings

When it comes to your finances, learning how to save money from income tax is a skill that one should develop. Tax planning is essential and fairly easy once you arm yourself with a few tried-and-tested tax-saving strategies. In fact, when done right, you can save a significant amount of your income. 

Here are a couple of tax-saving tips to help you streamline all your tax payments:

#1 Keep an eye on your savings account

This is one of the easiest ways to save income tax. While the interest generated on a savings bank account is recognised as income, you must know that the first deposit of up to ₹10,000 is exempt from any tax.

#2 Use tax-saving mutual funds

When learning how to save maximum income tax, be sure to consider your investing portfolio. Tax-saving schemes like the Public Provident Fund, National Savings Certificate, Equity-Linked Saving Schemes and others can be quite handy for such uses. 

Thanks to these schemes, you can reduce your taxable income by claiming deductions up to ₹1.50 lacs every year, as per Section 80C of the Income Tax Act. In a bid to learn how to save on tax, be sure to consider the other side of this coin. Investing your money for the sole purpose of reducing your tax outgo isn’t ideal. Your actions should contribute to your financial objectives, so invest wisely.

#3 Avail income tax deduction for rent

A salaried professional living in rented accommodation can enjoy the benefits of deduction claims like the HRA exemption. However, in case it is not applicable, you can claim deductions on the rent with the help of Section 80GG of the Income Tax Act. 

Such deductions are crucial income tax-saving tips when planning your finances. To save income tax, tips like these come in handy and you should learn about them. In addition to availing this deduction, you can speak with your employer and ensure that your salary structure is accurately aligned with your needs. In this instance, you must ensure that you get the HRA component of your income, as you would need this for tax-saving purposes. Similarly, if there are other viable components that could qualify for deductions, ensure that your employer includes them in your salary structure.

#4 Borrow loans smartly

When you take a loan for personal reasons from friends, relatives, or other informal sources, you have to pay taxes. This is because the principal amount in such cases is considered income, and you have to add it to your tax math at the end of the year. An alternative to this is to borrow loans from banks and NBFCs or even online from an instant loan app. 

While these personal loans aren’t great tax-saving instruments, you can avail benefits on the interest you pay. However, you can earn deductions on the interest you pay out in some specific cases only, such as:

• Taking a personal loan for business
• Funding your education using a personal loan 
• Availing a personal loan for constructing or buying a residential property

#5 Don’t wait for February

An important part of learning how to save on tax is to understand that it isn’t a last-minute effort. Be aware that tax planning and optimisation is a continual process. It requires a keen eye for detail throughout the year. Taking quick decisions on taxes as February concludes can result in errors and confusion, such as:

• Choosing the wrong tax-saving product in a hurry
• Being unprepared for a large money outflow for your investment option
• Being financially unprepared for a large tax outflow itself

As any wise investor agrees, you have to pick investment options according to priorities and risk tolerance apart from tax optimisation factors. This can reduce your last-minute stress and help you learn how to save on tax more efficiently for the next year. 

Moreover, by not delaying this process, you avoid penalties that are applicable for missing out on the deadline. This is a common issue and many miss out on the last date to file taxes. Waiting until the end of the financial year is never a smart option, especially if your goal is to reduce your tax outgo.

Ideally, this process should get initiated at the start of the year and action your tax-saving strategies right from the start. You can hire financial experts to assist with the planning process and ensure that you have the right instruments for maximum savings. In fact, availing the services of a professional may be the right way to go about it.

#6 Get insured and insure your loved ones

One of the efficient ways to save income tax and save money in general is to purchase health insurance. Having an active insurance policy has many benefits, and one among these is that you get deductions on your premium payments, as per the IT Act. 

If you are paying the premiums for health insurance plans for yourself and your dependents – your spouse, and your children, you can claim up ₹25,000 as a deduction. Additionally, premiums for health insurance for your senior-citizen parents qualify for a deduction of up to ₹50,000. 

While the tax POV is one way to maximise your savings, health insurance in general is also a smart option when prioritising savings. This is because it acts like a financial safety net when you need medical care or are faced with a medical emergency. With comprehensive insurance, you can get coverage going up to lacs of rupees, and this eliminates the need for you to depend on your savings.

The Verdict

Now that you know how to save on tax, it is important to remember that not all tax-saving options are the same. Pick strategies, opportunities, and even investment vehicles that best suit your needs. Security, cash flow, and returns are some factors to keep in perspective. After all, your objective shouldn’t be just about tax saving but to smartly leverage the opportunity to help you accomplish your financial goals.