How Women Can Save Taxes in India
Axe The Tax
The fact that Indian tax structure is complex is undeniable. While most things finance may seem hazy, women can actually save more taxes. Yes, you read that right! Here are some tax saving options available for women.
The income tax slab for both men and women below the age of 60 starts at 10% for an income exceeding Rs 2,50,000 up to 5,00,000 and 20% of income exceeding Rs 5,00,000 up to 10,00,000 and so on. Thus, income tax saving options, under section 80C for women and men are not different in India. There are some great ways of saving taxes and the good thing is that most of them also help you grow your wealth. These options usually have a lock in period and vary in the nature and amount of return they provide. You must also remember that each of these alternatives also serve specific purposes and tax saving is not the purpose but an ancillary benefit of that. While choosing a tax saving instrument, bear in mind some fundamentals including what your goals are for both the long term and short term. Also what is your age. “The 20s must most definitely bet on long term equity investment, 30s and early 40s may be ready for more risk as compared to those in 50s. While women (and men too) are bound to indulge themselves, it helps to set aside money that must go into savings/investments every month,” says Achit Gupta, Founder & CEO ClearTax.com. Also check what is your risk profile in that how risk averse/willing are you to bet on risk to get high returns. While planning on tax saving investments it is also important to look at your responsibilities with family. For instance if you have children and aging parents you should keep more liquid investments against long term lock in investments.
The additional rebate of Rs. 5000 for women that was being offered has been withdrawn. However there are many ways to save taxes legally and these can actually help you make your hard earned money work for you. Let us take a simple example. If your Total income, including salary and any other income is Rs. 10 lakh per annum you can make investments under Section 80C amounting to Rs. 1.5 lakhs, under Section 80CCD(1B) for Rs. 50,000 and under section 80D for Rs. 30,000 which will give you a total taxable salary of Rs. 7.7. lakhs. This way you have to pay tax on only Rs 7.7 lakhs! This means that you can actually save taxes to the extent of Rs. 47378! If you are wondering how – the tax slab of 20% on Rs 10 lakhs comes to Rs. 1,28,749 and on Rs 7.7 lakhs comes to Rs. 81,371. So if you want to know how to save taxes read on.
Section 80D of the Income Tax Act allows a tax deduction of up to Rs. 25,000 per year for paying health insurance premium. The benefit is available not just for your own health insurance premium but also for health insurance premiums paid for your spouse, children and parents. Experts advise that even if women have a corporate health insurance policy, it would be advisable to have an additional policy with a sum assured of at least Rs 5 lakh.
Section 80C of the Income Tax Act allows for a deduction of up to Rs. 1.5 lakhs for investing in tax-saving options likePublic Provident Fund (PPF), Employee Provident Fund (EPF), Equity-linked Saving Schemes (ELSS), Insurance premium payments etc. The choice of investments under section 80C will vary by individuals. Women working for Government enterprises have pension and Employee Provident Fund in place and would benefit with ELSS or life insurance. Sanjiv Singhal, Founder & COO at Scripbox advices, “the best way to look at the various 80C investment options is to see what is pre-determined and what is optional. EPF, Home Loan repayment and Tuition Fees, if applicable, are generally pre-determined. Add them up and see how much of your Rs. 1.5 lakh limit is utilised.”
If you have a girl child under 10 years, you can benefit from Sukanya Samridhi Yojna. You can deposit up to Rs. 1.5 lakh each year and earn a fixed return of 9.2%. Both the interest and maturity amounts under this scheme are tax free and the lock in period lasts as long as the girl (who is the account holder) turns 21, unless the girl gets married in which case a total withdrawal is possible. A premature withdrawal of up to 50 per cent can be done after 18 years of age for higher education.
Take a Home Loan
If you are in the highest tax bracket, an effective way to save taxes is to take a home loan and get tax benefits on both the principal and interest repayment. Section 80C also allows tax exemption of up to Rs. 1.5 lakh per year for principal paid on housing loan. Section 24 provides a tax deduction of up to Rs. 2 lakh per year on the interest on home loan. If you are investing in a second home or a property not occupied by yourself, there is no limit on the tax deduction to be claimed on the interest amount. Budget 2016 has announced an additional deduction of Rs. 50,000 on the interest component on a loan of up to Rs. 35 lakhs for first-time home buyers if the value of the house is not more than 50 lakhs.
Under section 80E, you can get a tax exemption of up to Rs. 1.5 lakh each year for interest paid on education loan. The loan can be taken for the education of self, spouse or children.
Mutual Funds & ELSS
For long term investment options choose ELSS and mutual funds as they invest in equity or stocks, that give superior returns in the long term but are risky. These are funds have a lock-in period of only 3 years and the return from ELSS funds is tax-free. You can invest up to Rs. 1.5 lakhs in ELSS funds either as a lump sum or on a monthly basis via a systematic investment plan (SIP) spreading your investments over the course of the year.
If you make donations, you can claim a tax deduction on the amount donated, allowed under section 80G. But remember to check whether the done is eligible as per the income tax act. Not all donations are eligible and some are allowed to be claimed only upto 50%) Make a realistic assessment of your short-term and long-term financial and align them with your tax-saving objectives to determine which tax-saving option is the best for you.
This story appeared in Femina issue dated March 3, 2017