Maximize Your Tax Refund: 5 Investment Strategies to Cut Your Tax Bill
Tax season often brings stress as people scramble to reduce their tax liability. However, tax-saving opportunities are often hiding in plain sight, and many individuals miss out on them simply because they aren’t aware of all the available deductions and exemptions. Whether you’re a salaried individual or a business owner, taking advantage of lesser-known investment options and expenses can significantly lower your tax burden. Here are five commonly overlooked avenues that can help you maximize your savings.
1. Invest in National Pension Scheme (NPS) for Additional Deductions
The National Pension Scheme (NPS) is a government-sponsored pension plan aimed at helping individuals build a retirement corpus. While Section 80C allows for deductions up to ₹1.5 lakh per annum on specified investments, NPS offers an additional deduction of ₹50,000 under Section 80CCD(1B), which is over and above the standard 80C limit.
By investing in NPS, you not only save for retirement but also reduce your taxable income. The returns from NPS are market-linked, and there are multiple fund options to suit your risk appetite. Additionally, the interest earned is tax-deferred, making it an attractive option for long-term wealth accumulation.
2. Claim Deductions on Health Insurance Premiums
Many people don’t realize how much they can save by claiming deductions on health insurance premiums under Section 80D. You can claim deductions up to ₹25,000 for insurance premiums paid for yourself, your spouse, and dependent children. If you’re insuring your parents, you can claim an additional deduction of ₹25,000, and this amount goes up to ₹50,000 if your parents are senior citizens.
Moreover, if both you and your parents are over the age of 60, the total deduction available under this section can go up to ₹1 lakh. Given the rising costs of healthcare, investing in a comprehensive health insurance plan is both a financially prudent and tax-efficient move.
3. Utilize Education Loan Repayment Deductions
While many people are aware of the tax benefits for home loan repayments under Section 24(b), fewer people take advantage of the deduction available for education loan repayments under Section 80E. This section allows for a deduction on the interest paid on an education loan for up to 8 years, starting from the year the loan repayment begins.
There’s no upper limit on the amount of deduction you can claim for interest payments, making this particularly useful for those with large education loans. It applies to loans taken for higher education for yourself, your spouse, or your children, and even for students for whom you are a legal guardian.
4. Leverage House Rent Allowance (HRA)
Even though House Rent Allowance (HRA) is a well-known concept, many salaried individuals fail to fully utilize this deduction. If you live in a rented house and do not receive HRA, you can still claim a deduction under Section 80GG. This provision is especially helpful for self-employed individuals or salaried employees without an HRA component in their salary structure.
The deduction is available for the least of the following:
- ₹5,000 per month,
- 25% of your total income, or
- The amount by which rent exceeds 10% of total income.
If you’re living with your parents, you can even pay rent to them and claim the deduction, provided you sign a rental agreement and the transactions are documented.
5. Contribute to Sukanya Samriddhi Yojana (SSY)
If you have a daughter under the age of 10, the Sukanya Samriddhi Yojana (SSY) is an excellent savings option that provides a triple benefit: it helps secure your daughter’s future, offers attractive interest rates, and provides tax savings under Section 80C. The interest earned on this account is tax-free, and the final maturity amount is also exempt from tax.
The current interest rate for SSY is around 8%, making it one of the highest return schemes under Section 80C. Contributions can be made for a maximum of 15 years from the date of account opening, with the account maturing 21 years after it is opened.
