It’s that part of the year when everyone is looking for ‘tax saving’. Last year exactly around this time I suggested 80C Tax Saving Mutual Funds. Normally we look at sections like 80C and 80D, figure out what qualifies for deductions and proceed to make those savings and investments. But have you ever asked if there is any better way to Save your Tax? I will discuss few of the ways and see if you can better your way of saving Tax.
I am of the camp who believes that Mutual Funds are the best way to save Tax Under 80C and there is no other method that can beat Mutual Fund way of saving tax. You can save your Full tax without even investing one lac. Apart from that the returns are also very attractive. I fight with many colleague on this over a period of time and guess what. I have never lost on a single argument on this.
Government Fixed Deposit / NSC Certificates
If you use Government Fixed Deposits or NSC certificates to save your tax there are many disadvantages and one of them being the interest you get from those NSC certificates is taxable and so the actual return you get on your investment, some goes into Tax. I am not sure of the current interest rate you get but then if its even 8% you will not get full 8% as you will be paying tax.
Few of my friends many times argue on the fact that Insurance is the best way of saving tax and not ELSS Mutual Funds and I ask them only 2 questions which answers their own queries.
- How much of your initial investment is actually invested?
- Which are the mutual funds where your policy invests? Assume he invests in policy which has some equity exposure.
The answer to first question is always near to 80% which means out of 100,000 of your investment target you only invested 80,000.
The answer to second question is they list me few funds. I tell them invest in those funds directly if they are ELSS funds or choose some other Good Tax Saving Funds. If your policy invests in few selected funds why don’t you do that on your own and save 20,000 Rs. If you want me to suggest few good funds for 20,000 I will give you 50% discount as well. And they do not have anything more to say.
So next time someone asks you about Insurance don’t forget to ask him the above 2 questions and then tell him bye-bye.
Till now I talked about my stories about 80C but have you ever thought about 80D. Section 80D of the Income Tax Act, 1961 allows you to claim tax deductions for Health Insurance taken for yourself and your family, including parents.
|Health Insurance Premium||Max Tax Savings|
|For yourself and your family||Rs. 15,000/-||Rs. 4,635/-|
|For your Parents (above 65 yrs.)||Rs. 20,000/-||Rs. 6,180/-|
|Total (for self and parents above 65)||Rs. 35,000/-||Rs.10,815/-|
So this time don’t forget to see if you need to some health insurance and if yes do save some tax there as well.
Over to you
Do you have your tax saving story to share. We would like to hear it.