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Here are 5 lesser-known tax saving tips

Tax-planning becomes vital as if they do not invest in tax-saving instruments, their tax outgo is higher and they are not able to save much for their financial goals or retirement corpus.

By Newsd
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Here are 5 lesser-known tax saving tips

Until most of us didn’t start making money, we always wondered why all the fuss was about saving taxes. But when we get our first salary and saw the tax cuts, we realise the importance of effective tax planning.

This is why tax-planning becomes vital as if they do not invest in tax-saving instruments, their tax outgo is higher and they are not able to save much for their financial goals or retirement corpus.

In most cases, people often stop further tax-saving investments after claiming deduction under Section 80C, primarily due to a lack of awareness about other options. However, many people fail to take advantage of all the tax saving avenues available.

Here are 5 lesser-known tax saving tips-

1. Re-invest old tax-saving investments: 

Many people may not know that once the old tax-saving investments have crossed the lock-in period, they can withdraw the money and reinvest in tax-effective investment instruments to earn tax benefits without having to spend more money.

You must know that while schemes such as PPF allow partial withdrawals upon finishing seven years from the time of investment, a tax-saving instrument like ELSS come with a three-year lock-in period which can be withdrawn entirely or partially. In this way, you can save taxes by reinvesting old tax-saving investments.

2. Planned MF redemption:

Many mutual investors often redeem their mutual fund investments when they need the money. However, this could result in high capital gains in a particular financial year. According to the Income Tax Rules, Rs 1 lakh of long term capital gains from equity investments (stocks, equity mutual funds, etc) are tax-free per financial year.

Therefore, investors should redeem investments in a planned way to save more tax. Instead of booking a large amount every four or five years, investors should book long term capital gains of Rs 1 lakh every year so as to keep their gains tax free.

For example- In case if you need money in the first quarter of a financial year, you can redeem some units in March (the previous financial year) and remaining units in April (current financial year). This way you can claim Rs 1 lakh exemptions each in two financial years.”

3. Charity: 

Some people don’t know that you can save tax on the amount donated to charities. Under Section 80G of the I-T Act, any donation to charitable organisations can receive up to 100% tax exemption. Donations to PM’s Relief Fund, CM’s Relief Fund, Earthquake Relief Fund and Flood Relief Fund, are eligible for 100% tax deduction. For any donation to an NGO, employees can claim a 50% deduction on the donated amount.

4. Pre-school fee:

Many taxpayers do not know that they can claim an income tax deduction on their child’s tuition fees of pre-school, i.e. pre-nursery and nursery. Tuition fees of pre-nursery and nursery are eligible for deduction under Section 80C of the Income Tax Act. However, the benefits are limited to only two children. So each parent can claim a tax deduction on the fees for two children.

5. Saving tax with the help of parents:

If you have some savings, you can transfer savings to the fixed deposit (FD) accounts of your senior citizen parents and earn tax-free interest of up to Rs 50,000 in a financial year from each of their accounts.

Then, your parents can then invest the fund in other tax-saving plans that meet the required eligibility for deduction under Section 80C such as SCSS to get more return. Also, keep in mind that even home loans from parents are eligible for tax deduction benefits under Section 24B for the interest payment you make.

However, you need to obtain appropriate interest certificates from your parents as proof of interest payment.

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