In the last two decades, Indian women have fearlessly challenged social norms to become financially independent. It is heartening to see more and more women making a career and earning a living for themselves.
Along with financial independence, it is also important for women to learn about financial management and tax savings. The objective of tax planning is to make the best use of government concessions and minimize the tax liability.
The Income Tax Act has several provisions that can help women do this. Income tax liability can be reduced by claiming deductions or through tax-saving investments.
HOW TO REDUCE TAX LIABILITY?
Below mentioned are three recommendations on how to reduce tax liability.
- Health insurance
Section 80D allows taxpayers to claim a deduction for the premium amount paid towards health insurance up to ₹ 25,000. The premium payment can be on behalf of the individual, her spouse, or parents. An additional deduction of ₹ 5,000 is allowed when health insurance is purchased for senior citizens.
- Home loans
Availing of home loans offers tax benefits to women on both, the principal as well as the interest to be paid. Section 80C allows a tax exemption of up to ₹ 1.5 lakh every year for the principal amount. Additionally, Section 24 has a provision for tax exemption of up to INR 2 lakh per annum towards interest.
- Education loans
Education loans are eligible to be claimed for tax exemption under section 80E. The maximum exemption allowed for interest payment per year is INR 1.5 lakh for up to seven assessment years. The loan may be availed for self, spouse, or children.
TAX SAVING THROUGH ELSS INVESTMENTS
Tax saving is very important when it comes to managing personal finances. However, it is also important to enhance the value of your money for long-term financial benefits. There are several tax-saving investments that can be used for this purpose. Popular investments include Equity-Linked Savings Schemes (ELSS), Public Provident Fund (PPF), National Savings Scheme (NSC), tax-saving fixed deposits (FDs), and Unit-Linked Insurance Plans (ULIPs).
WHAT ARE ELSS FUNDS?
Equity Linked Saving Scheme or ELSS is a tax saving mutual fund where you can save up to ₹1.5 lakh in a financial year under Section 80C.
For women who want to know how to save income tax, checking ELSS funds is a good option. ELSS, an innovative tax-saving product, effectively addresses this problem. ELSS funds offer relatively higher returns while also being eligible for tax deductions. Here are five features of ELSS.
- Equity-focused investment
More than 80% of the ELSS corpus is invested in equity and related securities. Investors can buy ELSS online or offline to reduce their tax liability.
- Long-term investment
ELSS is designed as a long-term investment and has a lock-in period of three years. However, to maximize returns, it is recommended that individuals stay invested for five to ten years. Long-term investment in ELSS enables fund managers to focus on delivering stellar returns instead of volatile short-term fluctuations.
ELSS allows investors to set the pace of their investment. One can make a lumpsum investment, or create a Systematic Investment Plan (SIP) based on their individual preference. Furthermore, investors may buy ELSS online or offline as per their convenience.
- ELSS returns
The value of an ELSS unit is reflected in its Net Asset Value (NAV). The NAV changes daily due to market forces. These schemes do not offer a fixed rate of return as most of the corpus is invested in equities and related instruments. The value of the investment is naturally subject to fluctuations due to the nature of the equities. However, long-term investment in these funds has historically provided returns that are far better than any other tax-saving investment.
- Tax-saving investment
The most attractive feature of ELSS is that investment in these products qualifies for tax exemption of up to INR 1.5 lakh under section 80C of the Income Tax Act. The principal, dividends, and maturity proceeds are all exempt from taxes.
The aforementioned are some tips to help women understand how to save income tax using the different tax-saving products available today. However, like all other investment options, it is important to understand the pros and cons of various choices to make an informed decision.