Tips to avoid paying high income taxes in 2020
Taxes can reduce the income that is finally accessible to you and can feel like a severe drain on your resources. Most people want to invest in a manner that maximises their income and by investing in tax saving instruments, it is possible to maximise the returns you generate off these instruments. If you have always wondered how to avoid paying income tax, you should know that it is important to plan in advance and submit the requisite forms to ensure effective tax savings. Read More
Investing in different instruments not only helps you to diversify your portfolio and increase your returns, but also helps in maximizing tax savings. Read on to learn how to avoid income tax from cutting into your returns.
- Buy Insurance:
Insurance policies provides protection and helps you save high taxes. Under Section 80C of the Income Tax Act, the premiums paid for life insurance, Unit Linked Insurance Plans (ULIPs) and health insurance are all exempt from taxes. Since ULIPs are a tool of investment as well as insurance, they can significantly help in increasing your corpus and meeting a financial goal. Term life insurance is a great recourse for those looking to safeguard their loved ones’ future. You can learn more about Term Insurance by browsing the website for the various Term Plans offered by PNB MetLife.
- Invest in Tax Saving Instruments:
Exemption from taxes is available on a lot of investments. Mutual funds such as equity linked saving schemes (ELSS) offer immense tax benefits, and thus allow you to grow your returns. Opening fixed deposits in banks and other financial instruments are also a great tool for those wanting to know how to escape income taxes. Under Section 80C of the Income Tax Act, the premiums paid for post office deposits are also exempt from taxes. The National Saving Certificate is also a great investment instrument for those learning how to avoid paying income tax, and is available at post offices.
- Invest in Building your Pension Fund:
Investments made towards maintaining a pension account are exempt from taxes. Making deposits towards the Provident Fund (PF) account are exempt from tax under Section 80C of the Income Tax Act. Investing in the National Pension Scheme (NPS) offers tax benefit as well. Sub-section 1(B) of Section 80CCD of the Income Tax Act provides for a deduction of Rs. 50,000 for investments made into the NPS.
- Generate Income through Agriculture:
In a bid to boost the agricultural sector, the government has made income from the sector completely exempt from taxation. Whether your income is through the sale of agricultural produce, or whether you rent out agricultural land or buildings; you will not be liable to taxation for this income.
- Earn tax free interest on Saving Accounts:
Section 80TTA of the Income Tax Act allows for up to Rs. 10,000 as deductions on interest earned through your saving accounts. However, if you earn more than Rs. 10,000 as interest from your savings account, it will be regarded as taxable income.
- Take an Educational Loan:
Availing an educational loan from a recognised charitable or financial institution can help you save taxes. An educational loan can be availed for yourself, spouse or your child and must be intended for the purpose of pursuing a full-time course at a recognised institution. The interest paid on the educational loan is exempt from taxes under Section 80E of the Income Tax Act.
- Donate to Charitable Causes:
Tax deductions are available on donations made to charitable institutions and organisations. As per Section 80G of the Income Tax Act, donations made for charitable or philanthropic causes, including contributions made to the National Relief Funds, are eligible for tax deductions. While some contributions can get 100% taxation, others are eligible for 50% deductions on the basis of the reason for which the contribution was made. These tax deductions, however, are available only on donations made through cash or cheque and not available to people making donations in kind, such as through clothes or food.
- Take a Home Loan:
A home loan is a great tip for those wondering on how to avoid paying income tax. Under Section 80C of the Income Tax Act, you are eligible for deductions on the repayment you make of the principal amount, but the deduction is capped at Rs. 1,50,000. On the interest paid on the home loan, you can claim deductions up to Rs. 2,00,000 under Section 24. Furthermore, Section 80EE, a tax benefit of up to Rs. 50,000 is available to first-time home buyers.
To those wondering how to avoid income tax, it is best to plan well in advance to ensure that the least amount is lost to taxes. Make a complete schedule of the investments and diversify your portfolio to ensure good returns. Term life insurance policies are a great measure to save taxes and reap long-term benefits.
*Tax benefits are subject to conditions and other provisions of the Indian tax laws and are subject to amendments made thereto from time to time.
The information provided in this article is generic in nature and for informational purposes only. It is not a substitute for specific advice in your own circumstances. You are recommended to obtain specific professional advice from before you take any/refrain from any action. Tax benefits are subject to changes in tax laws. Please contact your tax consultant for an exact calculation of your tax liabilities.
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