Salaried individuals, on a day-to-day basis, hear a lot of talk about making investments so as to save on taxes. There are several tax-saving schemes available in the market that can help guide us to make appropriate investments under Section 80C of the Income Tax Act.
However, financial planning can be a daunting task for many individuals who miss out on making the minimum investments required to save up on taxes and take their hard-earned income for granted.
Archit Gupta, founder and CEO, ClearTax helps us decipher some of the income tax deduction myths:
Do I need to take up any tax-savings schemes if my salary is low?
Tax saving is critical for those with low salary income, as they have the potential to bring down their taxes to zero. Starting FY2019-20, the tax deduction will be zero for those who are earning up to or equal to Rs 5 lakh per annum. This can be done by taking benefit of the Section 80C or any other Section 80 deduction of the Income Tax Act.In case your salary is low, you can focus on making return generating investments rather than purely tax saving. Therefore, choosing a suitable investing strategy is even more important for you.
The total rent I pay is taxable? If you are a salaried person and your employer offers house rent allowance (HRA), you can claim exemption on the rent payments you make against the HRA paid to you. The employer will give you this benefit directly if you submit your rent receipts.
The total rent you pay is not taxable, it is an expense you make.
Is the total amount of EMI’s that I pay is taxable?
EMI or equated monthly instalment, as the name suggests, is one part of the equally divided monthly outgoes, usually to clear off an outstanding loan within a stipulated time frame. In simpler words, EMI is a form of repayment of a loan or monthly instalments along with an interest component. However, in most cases, towards the end of the loan term, your EMI may have a large portion of principal repayment.
Furthermore, EMI’s on cars or any luxury asset are not taxable as it is neither taxable nor can it be claimed as deductions from any income.
However, if you are paying an EMI on a home loan, then you can claim a deduction under Section 80C for the principal amount and claim a deduction on the interest under Section 24 for interest portion. EMIs that you pay is not taxable.
No, your PF contribution to the EPF account is not taxable. In fact, you can claim them as deductions under Section 80C. Please note that the deduction made under Section 80C can be claimed to a maximum limit of Rs 1,50,000.
Is my provident fund (PF) contribution to the EPF account taxable?
Investments are expensive, I cannot afford to make investments right now.
As you know that money lying in a savings bank account does not earn much to tackle inflation; leave aside the wealth accumulation aspect. So, apart from the regular saving activity, individuals are encouraged to make investments in various avenues. It should be done to grow wealth to have a secure financial future.
But investments are treated as an expensive affair. With all the existing fixed costs in life, individuals find investing unaffordable.
This is not true in reality. Investments can be pretty affordable. What matters is how you pursue the same. A well-diversified portfolio of 10-20 stocks may cost you thousands of bucks if you invest in stock markets directly. But if you invest in mutual funds via SIPs, then the same exposure would cost you as low as Rs 500 per month. That’s the least amount required to start making your investments. If this gets debited automatically, you’ll know what you are left with to spend.
Those who continue their SIPs through-out different market cycles may enjoy rupee cost averaging. In this, your SIP will fetch the additional number of units at lower market prices. In this way, your overall cost of investment will come down. And you’ll be on the path to wealth accumulation, steadily.
The exact amount of SIP would depend on how much amount you want to accumulate (based on your goals). While planning your monthly budget, you may set aside some amount for doing the SIP. Ensure that you stay committed to your SIPs for achieving financial goals.
Disclaimer: The views and investment tips expressed by investment experts are their own and not that of the website or its management. Users are advised to check with certified experts before taking any investment decisions.