Tax saving schemes are easily accessible in the financial market. However, opting for the best options can be a tricky task. It is essential to keep in mind that even though various options are easily available online, investors can be prone to pitfalls if they decide to invest in poor-performing funds. An inefficient tax saving investment plan can severely affect the time period taken devoted to achieving one’s financial goals. Investing in a fund that leads to high-income tax deduction generally showcases poor money management with respect to financial planning. It depletes the share of income to be taken back home.
Investing in the right mutual funds not only enhances financial wealth but also helps the individual to save tax. Tax saving schemes are investor-friendly and help manage as well as multiply the money invested over a certain period of time. It is advisable to have a clear idea of all available tax saving plans before falling prey to any fraudulent schemes.
Tax saving tips for 2020
Investors can take the help of the following pragmatic tips before investing in tax saving schemes.
#1 Congregate the tax saving options
Before delving into the tax saving measures, it is important to understand the options available. If you want to play safe with tax saving options through investment, you may consider adding qualified assets that will help to earn deductions under Section 80C assets up to Rs 1.5 lakh. Some of the schemes which fall under this section are Equity Linked Saving Schemes (ELSS), Public Provident Fund (PPF), five-year fixed deposits, voluntary provident fund, etc.
An alternative to save tax is by buying insurance. Investment in a term policy, health insurance to avail tax-deduction is considered beneficial. Under section 80C and section 24, the home loans provide tax benefits. The tax experts suggest laying hands on all the regular options to reduce tax liability. It also suggests investors to avoid going down the line, which would result in counterproductive financial decisions.
#2 Avail tax benefits by taking a home loan
The individuals planning to avail a home loan should proceed with the plan to fulfil their dream. Financial advisors suggest that taking up an affordable home loan will help to get a tax deduction benefit. The benefit may extend up to Rs 1.5 lakhs under 80EEA. The 80EEA deduction is applicable for the self-occupied property for loan interest repayment.
The 80EEA tax benefit is available to the borrowers of the home loans if it is be sanctioned between 1st April 2019 and 31st March 2020. However, the borrowers can avail the home loan tax benefit if they own another residential property. They are required to meet the eligibility criteria, which includes the size and value of the property.
So, individuals may hurry and get hold of the limited period offer of availing a home loan before 31st March 2020 and carry back additional long-term tax benefits available under section 80EEA.
#3 Book long-term capital gains
The long-term capital gains (LTCG) on equity investment exceeding Rs.1 lakh fall under the tax application category. A 10% income tax will be applied to the amount if it exceeds the threshold of Rs.1 lakh.
Experts suggest that the individual can book LTGC every year to avoid paying the applicable tax on the amount. Indulging in equity investment plan will make a big difference to the overall tax liability that helps to save a 10% LTCG tax.
#4 Claiming medical expenses as a tax deduction
Availing health insurance for senior citizens is quite difficult. If your parents do not hold a health insurance policy and you are also unable to get tax deductions under section 80D, you may turn up to claim tax deduction benefit up to Rs.50,000 against the medical expenses of parents. Availing the tax deduction benefit using this strategy should be done with great care because it is essential to keep all the medical bills to claim the tax deduction benefit.
#5 Avert long-term payment commitments
The tax advisors warn investors on investing in long-term repayment plans. Such products should be avoided unless you have kept them in sync with your financial plans.
People often fall for fraudulent offers by investing in last-minute-tax saving measures. However, after a few months, they do realize the mistake and don’t want to continue the plan. Opting out from a plan just after investing in it could lead to significant financial loss. So, make sure to research well before zeroing in on a plan.
If a person makes a decision to invest in tax saving instruments, he should thoroughly analyze the market and choose the right instruments wisely. Taking the help of a financial advisor can help one to invest in the best financial plan to meet his financial goals along with savings on tax.