How to Save Money & Plan Taxes this Financial Year 2018-19
Every 31st March brings with it the opportunity to plan the financial year ahead, better than last year. A healthy financial plan is not just about planning your money, but also learning from and correcting the mistakes made in previous years. With a little bit of planning and some foresight, you can plan your finances and move towards your long-term financial goals. Find out how you can save money and plan taxes this financial year 2018-19.
We also have a Bonus Tip for you towards the end!
Factors to Consider
A number of factors come into play when you devise a fresh new financial plan –
- A potential change in income
- Mistakes made in the previous financial year
- Short-term expenses in the year ahead
- Long-term expenses in the year ahead
What really helps is setting a near-definite goal and make an estimate of the steps you will need to take to meet those goals.
An Organized Approach
Having an approach that is well-planned and methodical is definitely beneficial when it comes to finances. Have an estimated annual income, and adjust a monthly sum for savings and investments, throughout the year. You can even consider diverting your excess funds towards short-term debt instruments.
Review your asset allocation strategy with the beginning of the new financial year. With debt and equity, you can either rebalance your corpus to match a predetermined allocation or refresh the allocation in a way that reflects a change in your take on investment and risk.
Tax planning for 2018-19 is a crucial step in your entire financial planning exercise. You can pick a tax-saving instrument of your choice depending on how much risk is too much risk for you. For instance, an Equity Linked Saving Scheme is a good choice for those who are willing to take the risk of equity-based instruments for tax-saving.
Invest in a medical insurance, in addition to the one provided by your company. When in need, the ever-rising expenditure of meeting your medical needs should not burn a hole in your otherwise-well-planned savings. With a premium of ₹25,000 for individuals (purchased for yourself, spouse, or dependent children), you can avail tax benefit on the premiums paid, u/s 80D.
The health insurance tax benefit is allowed for preventive health check-up as well as other medical expenses.
Do not wait until year-end to take this step towards planning your finances. You want to take your time and make an informed and prudent decision to plan your taxes, which is not possible when you do it at the last minute. It is important to ensure you have enough corpus to maximize the amount you can invest or save.
Education Loan & Home Loan
In case you have taken an education loan (for yourself, spouse, dependent children, or an individual you are a legal guardian to), you can claim a tax benefit on the interest component, via deduction u/s 80E. There is no upper limit on this deduction.
You can also bring down your tax liability by availing the tax benefits on your home loan. You can get a maximum of ₹2,00,000 on your interest paid towards home loan u/s 24. Deduction on the principal amount paid can also be availed, subject to a maximum of ₹1,50,000 u/s 80C. Additionally, you can also claim a deduction for registration charges and stamp duty during the year in which these expenses have been paid.
You can invest in a number of financial instruments to avail benefits in the future and even get tax relief. Some of the most common tax-saving instruments are Unit-Linked Investment Plans, Public Provident Fund, Equity Linked Saving Schemes, Fixed Deposits (with a 5-years lock-in period), National Saving Certificate, and Post Office Time Deposits. Tax benefit subject to a maximum limit of ₹1,50,000 can be availed on these investments, u/s 80C.
If you are interested in options that are safer and more retirement-based, NPS or PPF are better-suited for you. Both of these are exempt up to ₹1,50,000 u/s 80C. NPS has an additional exemption u/s 80CCE of ₹50,000. (Source: Bank Bazaar)
For any donation made towards a philanthropic purpose or charity, you can avail tax relief u/s 80G. Depending on the purpose, the donations are exempted subject to a certain percentage. Some donations are fully exempt, while others offer 50% deduction.
Your tax liability can be planned through various other methods like tax benefit on HRA, LTA, and food coupons. With these tax-saving tips and a little bit of planning, you will be able to save more. For more clarity on your numbers, try out this Tax Calculator for 2018-19.
You can also read, Budget 2018 – Important Highlights