Paying taxes from your hard-earned money is difficult for everyone. However, there are smart ways to minimise the income tax burden in each financial year. In the year 2020, the Budget introduced several new provisions, such as revised tax slabs, reduction in tax rates, and the flexibility for the tax-payer to choose a suitable tax scheme – old or new. With such modifications, tax-saving tips become even more viable.
Best ways to save income tax for 2020-21:
1. Choose Equity-Linked Saving Schemes (ELSS)
Equity-Linked Saving Schemes are diversified mutual funds that offer multiple other benefits in addition to tax savings. According to the Income Tac Act 1961, under Section 80C, you can file for a tax deduction for ELSS investments made up to ₹1.5 lakhs per year. Additionally, because these funds are equity-based, gains up to ₹1 lakh are tax-free. Continuous harvesting of these profits can help you avoid more liability on long-term capital gains.
Further, ELSS offer high returns on investments and also have a short lock-in period of three years. Choose trusted institutions like YES BANK and opt for the ideal way to invest in ELSS through the MFOnline portal to save income tax for 2020-21.
2. Opt for National Pension Scheme (NPS)
NPS is a government-backed pension scheme, which allows you to contribute consistently in a secure pension account during your working years. Upon retirement, you can withdraw a part of your accumulated savings in a lump sum and deploy the rest of the funds to buy an annuity that would offer a regular stream of income for the rest of your non-working life. Any Indian citizen between the age of 18 and 60 years can contribute to NPS.
You can claim for an income tax deduction for NPS investments up to ₹1.5 lakh under Section 80CCD (1). Additionally, you can also get an exemption of ₹50,000 under Section 80CCD(1B), if you invest in NPS. Further, if you are a salaried employee and your employer contributes a specific percentage towards NPS, you can get an additional claim under Section 80CCD (2). However, this is subject to specific terms and only if you consider the new income tax scheme.
3. Invest in Sukanya Samriddhi Yojana (SSY)
Sukanya Samriddhi Yojana (SSY) is a government-backed scheme that aims to benefit the girl child by securing her financial future. According to the Income Tax Act, investments in SSY up to ₹1.5 lakhs are exempt from tax under Section 80C. Further, the interest earnings and maturity proceeds are also tax-free.
4. Be clever with the new tax-regime
You can minimise taxes for 2020-21 if you prudently select your tax scheme. For this purpose, you should analyse your total income, deductions available based on investments and your overall tax liability. The old tax slab offers more exemptions, the new income tax slab levies lower rates. So, when choosing your regime analyses which tax scheme will allow higher savings.
5. Take advice from a professional
If you are confused about which tax -regime to opt for and which investments to make for higher tax savings, you can trust a tax and financial professional to offers you expert advice. Moreover, when you file tax for yourself, you are more likely to miss out on provisions, which could otherwise be very helpful.
Overall, you can consider investing in ELSS, NPS and SSY to make most of your tax advantages under the law. Moreover, being wise with your income tax regime and employing services of a professional can ensure optimum utilisation of benefits as granted by the Income Tax Act, 1961.
For a detailed guide to tax saving solutions for you, check out the YES Tax Solutions from YES BANK. Get detailed solutions to plan your finances and grow your wealth while saving taxes as well!