Tax is a cause of concern for most people and taxation related worries peak just ahead of the tax season. For some, taxation comes across as a complicated process whereas for others, it’s something they don’t have time for. There are also people who find it tough to part with their hard-earned money. All these factors lead to worries and anxiety, as the tax season approaches. Furthermore, most people tend to avoid working proactively on their tax planning. They make a rush at the last moment and end up paying more taxes than what may be required. Taxes cannot be avoided altogether, but the overall quantum of taxes can certainly be reduced. If you proactively pursue your tax planning, you can save around 10-60 percent of your taxes. Itmay sound unbelievable, but it is,in fact, very much possible.
To save money through smart tax planning, you first need to get a bird’s eye view of your total income and applicable taxes. For this, you can use any of the online income tax calculators. Here’s a simple and easy-to-use income tax calculator by Aegon Life. The income tax calculator provides options for various deductions, which is exactly where you need to focus if you want to pay the minimal amount of tax on your total income. These deductions should be part of your tax planning and you need to work proactively to ensure that you are eligible for these deductions. You should try to cover as much as possible from the available deductions such as 80C, 80CCC, 80CCD, 80D, HRA, 24(b), 80E, 80DD, 80DDB, 80U and 80G.
Deductions available under Section 80C are widely used, as they allow significant tax benefits and increase your savings. Deductions under Section 80C should be an integral part of your tax planning. Under this, you can opt for various options such as Life Insurance, Public Provident Fund (PPF), Fixed Deposits, National Savings Scheme (NSE), and Equity Linked Savings Schemes (ELSS). Life Insurance is a preferred option, as it is not only a tax saving tool, but also safeguards the future of your loved ones. Life insurancehas been rated as the most cost-effective tool for safeguarding the financial future of your family. The fact that you will be able to save a significant amount of tax is a huge bonus.Other investment options such as PPF and Fixed Deposits are also widely used to reduce tax and increase savings.
Smart tax planning also requires you to achieve a balance between your tax saving investments and your existing financial needs. For example, if you over-invest, you might save more tax, but may face issues with your monthly expenses. As such, you need to get an approximate view of your monthly/annual expenses. You also need to set aside some funds for emergencies and unforeseen events. Keep in mind that all tax deductions have an upper limit. You should not exceed it unless there’s a genuine reason for it.
With smart tax planning, you can save substantial amount of money and secure your financial future as well. You can reinvest your savings or use it for your personal needs. Start early to maximize your tax savings and avoid the worries and hassles of the last moment rush.