Direct tax impacts your disposable income and reduces it. However, the Income Tax Act, 1961 has listed various ways in which you can reduce the burden of direct tax. Some of these ways are as follows –
- Invest in life insurance
Life insurance plans are tax-saving financial protection solutions. The premium invested earns you a tax deduction under Section 80C up to a limit of INR 1.5 lakhs. Similarly, the maturity benefit received is also tax-free under Section 10(10D) if your premiums are limited to 10% of the sum assured. The death benefit is always tax-free making insurance plans EEE in nature. - Invest in health insurance
Like life insurance, health insurance plans also allow deduction in your taxable income. The premium paid is allowed as a deduction up to INR 25,000 under Section 80D. If you are above 60 years of age, the deduction limit is enhanced to INR 50,000. Furthermore, if you buy a health plan for your parents, you can claim an additional deduction up to INR 25,000 or INR 50,000 depending on your parents’ age. - Invest in ELSS schemes
ELSS schemes are equity-oriented mutual fund schemes that allow deduction on your investment under Section 80C. These schemes have a lock-in period of 3 years and when you redeem, returns up to INR 1 lakh is allowed as a tax-free benefit. - Invest in a home
A home financed with a home loan also gives tax benefits. The principal of the loan is allowed as a deduction under Section 80C. The interest paid, on the other hand, is allowed as an exemption under Section 24(b) up to INR 2 lakhs. If you buy your first home and some conditions are fulfilled, you can also claim an additional deduction of up to INR 1.5 lakhs under Section 80EEA. - Invest in other 80C avenues
Section 80C allows a deduction of up to INR 1.5 lakhs through various avenues like PPF, EPF, Senior Citizen Saving Scheme, Sukanya Samriddhi Yojana, NPS, NSC, etc. So, invest in these avenues to utilise the benefit of Section 80C and save your taxes.