With only a few weeks to go, 2020 is fast approaching. Following close on the heels of the end of the old year is another ending of sorts. Come March 31st, 2020, and you’ll have to bid goodbye to financial year 2019-20. Before the next financial year rolls around, you might want to look at some tax saving tips that can help you with your year-end tax planning. You have until the end of March to make investments or avail loans that you think can help you reduce your tax burden. If you’re unsure about where to begin, here are some useful end-of-the-year tax planning tips.
- Donate to a cause
It’s the holiday season now. So, if you’re feeling up to doing your good deed for the day, consider donating any surplus funds you may have. Not only can it help with a legitimate cause, but it can also reduce your tax burden. With Section 80G of the Income Tax Act, you can claim the amount donated to specified funds as a deduction from your total income.
Depending on the fund or cause, your donation shall be eligible for 100% or 50% deduction. The limit for claiming deduction under section 80G is capped at 10% of your gross total income. What’s more, this provision is over and above your 80C deduction claims. So, if your investments have already reached the maximum limit, you could make use of section 80G for an added benefit.
- Boost your retirement fund
Another way to approach year-end tax planning is to invest in instruments that can offer you the dual benefit of reducing your tax as well as making your money grow. By adopting this strategy, you can route the benefits from these investments to your retirement fund, so your future is financially secure. Some examples of low-risk investments that can contribute to your retirement fund include tax-saving fixed deposits, National Pension Scheme (NPS), Public Provident Fund (PPF), and government bonds.
Alternatively, if you’d like to adopt a more balanced approach to risk, consider options like debt mutual funds or equity mutual funds. Investing in these instruments also qualifies for deductions under section 80C, so you can reduce your taxable income and thereby minimize your tax liability.
- Consider loss harvesting
If you’re already a seasoned investor in the equity market, you’re no stranger to losses. The market often swings significantly, leading to profits for some investors and losses for others. Profits from selling assets like securities can be short-term or long-term capital gains, and like all earnings, they’re also subject to tax. If you’re not careful, your tax liability could skyrocket depending on the amount of capital profits you’ve made during the financial year.
Fortunately, with loss harvesting, you can reduce the amount of tax on capital gains either partially or completely. Loss harvesting essentially requires that you sell off loss-making securities, so you’ll suffer capital losses, which can be set off against your capital gains. If your capital loss exceeds the gains, you can carry forward the excess loss after setting off all your gains for the year and use it to set off any gains you make in the next 8 years.
- Invest in insurance
An insurance cover is an essential part of financial planning in general and tax planning in particular. If you don’t have a life insurance or a term insurance plan, consider investing in one before this financial year comes to a close. Aside from the obvious benefit of a protective life cover, you can also enjoy tax benefits under section 80D. The premium you pay for purchasing the insurance cover is deductible from your total income, up to a maximum of Rs. 1.5 lacs. To know more about Term Insurance, browse the website for various Term Plans offered by PNB MetLife.
Furthermore, you could also invest in a health insurance plan to claim an added deduction under section 80D. This section provides that the premium you pay for obtaining a health insurance plan for yourself or your family (kids and spouse) can be deducted from your total income up to a limit of Rs. 25,000. In addition to this, if you’ve also purchased health insurance for your parents, you can claim the premium on that policy as a deduction up to another Rs. 25,000. If your parents are senior citizens, the limit goes up to Rs. 50,000.
- Borrow funds for your short-term goals
You can also save tax by linking your financial goals with tax-saving schemes. For instance, if you intend to purchase or construct a home in the coming year, you could avail a housing loan before this financial year comes to a close. That way, you can claim the principal component as a deduction under section 80C and the interest component as a deduction under section 24.
Alternatively, if you plan to send your kids off to college in the coming year, you may need to pay for their higher education by availing an education loan. By borrowing the funds before 31st March, you can claim the interest paid on the loan as a deduction, as per section 80E.
With these tax-saving tips, you’ll find that it becomes easier to reduce the burden of high taxes. And while last-minute tax-planning is certainly possible, keep in mind that tax-saving is generally an exercise that you need to indulge in over the course of each financial year, so you do not make any hasty decisions as the end of the year approaches.
The income tax is levied on all earning individuals who fall under a taxable income bracket. The income tax is paid to the Government of India and is charged annually. However, there are several tax deductions and exemptions that you can claim to lower your tax liability. The Income Tax Calculator helps you ascertain your tax output for a financial year based on your taxable income. This can help you plan well and save tax using the tax-saving deductions and exemptions, if possible.
- *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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