The objective of this post is to unearth options that can be explored by users who are out in the market looking for tax saving options. The emphasis will be on Income Tax, which is a direct tax. While we are on the topic, fees are of 2 types: Direct such as Income Tax and Indirect such as GST. Mutual Funds and Loans have been found to aid in tax savings. This will be discussed in further sections. Here are a few of them:
- ELSS: This is short for Equity Linked Savings Scheme. Just like most Mutual Funds schemes, the fixed return is not guaranteed. The upper limit of investment in this section is INR 1.5 lakhs. The sponsor can choose to remain invested in equity or dividend.
- To give an overview, a mutual fund puts together money from sponsors and intends to generate profit for them. This is made possible from wise investments in businesses that have the potential to grow in the timeline envisaged by the mutual fund manager. The payments are either smaller, consistent cash outflows or more significant, one-time payments.
- ELSS, as described above, is a kind of mutual fund. It allows its users to choose the pay-back. There are some good mutual fund schemes with their launch date and 5-year performance.
- Investment timing is a much-debated topic. It is observed that activities see a jump before the end of the financial year. Hence, mutual fund investments are active in the months leading up to 31st March.
- Critical factors with ELSS: Save INR 1.5 lakhs, unlike most other mutual funds. They all have a 3-year commitment period. It is a tax-saving mutual fund scheme. Equity mutual fund schemes are suited most if one wishes to earn money in short to medium timelines.
2. Home Loan: If there is an existing home loan, you can claim the principal payment for tax benefits. As is known, the loan EMI (Equated Monthly Installments) is made up of Principal and Interest. Please ask the credit agency to issue a break-up of the Principal and Interest payments for the given Financial Year. This logic of the loan repayment applies to a partial and full refund.
3. Education Loan:
- The interest component of an education loan directed towards yourself, guardians, children, and spouse can be utilized to this effect. However, loans are taken out for relatives, and siblings are not submissive. There is no upper limit to the amount of benefit that can be claimed as part of this loan scheme. Please note that it applies to the interest component only.
- Please ensure that higher education is involved, viz. Courses pursued after Class 12. They had set the benefit period to 8 years from when the loan was taken out or its end, whichever is earlier.
- Also ensure that the loan is from an Indian scheduled bank or the following twotwo institutions: HDFC & Credila.
- Only the interest component of the loan can be claimed as a benefit. The principal repayment cannot be claimed. Besides, this scheme also works for education loan drawn for studying abroad.
4. Long term gains: If you invest money in mutual funds and hold it for more than 12 months, there is no capital gains Tax that you will be subjected to.
5. Loan some money: There are benefits of showing the monetary movement in a certain way as described in the following statements: Buy a house in your spouse’s name & move the 2nd property to her. If she pays you interest on the loan, the income from the occupation of rent will not be considered.
6. ULIP: They are insurance policies and utilize a portion of the investment to create returns, similar to most mutual fund schemes. They create an eco-system of an insurance policy and a mutual fund arrangement in one package. However, users looking for better returns should research on proper mutual funds instead. ULIP stands for Unit Linked Insurance Plan.
7. Car Loan: In India, if the asset (Car in this case) is being used for business purposes, the corresponding car loan will be of help. Please note that a salaried person cannot be a party to this loan scheme as a car is under the ‘luxury’ purview. For business owners, the amount paid as interest on the said car loan can be set off from the taxable income at the end of the financial year.
8. Recent Developments:
- According to the budget for this year, interest paid on loans that can be claimed as a benefit by the citizens is set to increase to INR 3.5 lakhs. The cut-off date for the loan start date is 31st March 2020. Hence, for a loan period of 15 years, INR 7 lakhs worth of benefits would be accrued.
- Loans on e-vehicles also bring a benefit of up to INR 1.5 lakhs. This will apply to the interest component of the said loan.
9. Personal Loan: In cases where the utilization of a personal loan is for business purposes, the interest component can be claimed as a benefit by the beneficiary. Under a specific section, if the loan goes towards building infrastructure, it is still possible to request the said benefit. The credit agency has to ensure that the loan was put to use in the claimed manner. For any other purchases, the loan cannot be used in this scheme. Please keep full records of the utilization of the loan to have a hassle-free experience. Usually, such loans come with no collaterals. The credit score of the applicant or the organization plays a vital role in procuring loans, which can reap Income Tax benefits. Please note that Personal Loans are not taxable. It is seen that the upper limit of a Personal loan is INR 25 lakhs. Also, the loan paperwork is kept minimal to facilitate quick disbursal and is thus an attractive proposition for most debtors. The loan repayment can be spread up to 60 months.