Tax-Savings play an important role in financial planning. Each year new taxpayers get added to the country. They should take care to plan their investments and expenses in a manner that they are able to save more money and pay less tax.
Taxpayers at times don’t have proper knowledge of tax savings which leads to mistakes due to which they are unable to take maximum advantage of tax savings. In this article, we will highlight some important Dos and Don’ts that every taxpayer in India shall understand in order to save tax in the new financial year of 2023-24.
Do’s for Tax Savings in 2023
Here are some tax-saving investment options to save tax.
- Fixed Deposits
Fixed deposit is one of the oldest and most popular investments in India. There are tax-saver FDs offered by banks and NBFCs. By investing in such FDs you can save tax. These FDs are eligible for a deduction of ₹150000 under Section 80C of the Income Tax Act.
- PPF (Public Provident Fund)
PPF is also a good investment option to save taxes. PPF accounts can be opened in a post office or any bank. The investment in PPF is eligible for deduction up to ₹150000.
- Health Insurance
Many people don’t know that the premium you pay for a health insurance policy is eligible for tax deduction under section 80D. The health insurance premium you pay gives you tax benefits under section 80D. As per this section, the health insurance premium paid by individuals and HUFs for the health insurance policy of self, spouse, and children is eligible for a deduction of up to ₹25000.
- Home Loan Tax Deduction
Even home loans can give you tax benefits. As per the Income Tax act, the principal amount of a home loan is eligible for tax deduction up to ₹150000. In addition to this interest on a home loan is also eligible for deduction up to ₹200000.
- Agricultural Income
You can also save tax through agriculture income. As per section 10(1) of the IT Act, the income earned by an assessee through agriculture is tax-free.
Don’ts for Tax Savings in 2023
Here are some of the mistakes made by taxpayers. You can avoid this.
- Delay in Tax-Saving Investments
It has been found that people in India wait for the last quarter of the year to start planning for tax savings. Due to this, you are in haste to invest and sometimes make wrong decisions. So better start tax planning from the start of the financial year.
- Giving Preference to Tax-Inefficient Schemes
Many people invest their money in some products like FDs and National Savings Certificates (NSC). These products are only offering one-time tax benefits. But the interest earned on both is taxable. On the other hand investments in PPF as well as interest earned from PPF, are tax-free.
- Ignoring Expenses in Tax Savings
Many people are unaware that expenses like rent, house loan payments, health insurance premiums, children’s tuition fees, etc are eligible for tax deductions. People don’t declare such expenses in IT returns and hence they pay more tax.
- Investing in Endowment Plans
Many people invest in endowment plans for tax savings purposes. This is not a good idea. This endowment plan has a long tenure ranging from 10-20 years. On redeeming it before maturity you won’t receive the initial investment back.
If you are planning to save taxes then plan smartly. Avoid making mistakes that can cost you to pay more taxes. Also, take care to align your goals with investments along with tax savings.