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Tax-saving 101 for young earners
March, 18th 2019

Just a couple of weeks left to the end of the financial year! You know what that means right?!

End of tax-saving season?

Also, the last minute rush to complete whatever needs to be done at the end of a financial year.

I don't know about you, but for me anything to do with taxation is rather intimidating..

Oh no you are not alone on that boat sister! I get my tax stuff cross checked by my mother! And it is not just me.. a lot of people leave it to their trusted CAs or anyone who has any kind of accountancy background. I can only imagine how daunting it might be for people who have just started.. how hard to scurry through and get out of this maze!

So, in this week's ET Wealth Wisdom podcast, we will try to simplify tax saving for young earners. I am Shambhavi Mehrotra and I am Tania Kishore Jaleel, and we will tell you how you can save tax without burning a hole in your wallet.

Let's dive right into it then!

You can start by utilising the HRA portion of your salary properly.
To avail the HRA tax exemption, you need to submit rent receipts or the rent agreement. Quoting the landlord's PAN is mandatory if the rent paid is more than a lakh year, that is, Rs 8,333 a month, to avail the full benefit of HRA exemption. If you don't have a rent agreement, a duly signed declaration from the landlord will help too.

Next, let's get to how you can use your education loan to save tax.
Many who took a student loan wait for the day they finish paying it off. Up until then, you can use the loan to get a tax break
Yup, if you have taken an education loan for your higher studies, and are working now, don't forget to claim this deduction. Section 80E of the Income-tax Act allows for deduction on the interest paid on the loan.

That is right, you can deduct the entire interest amount paid from your income before levy of tax and the deduction is allowed for a maximum of 8 years. The principal amount however does not qualify for any tax deduction. But keep in mind that only the person paying interest on the loan for himself/herself or spouse can claim this deduction.

To claim deduction, all you need to do is give your employer the certificate of interest paid from the bank where you have taken the loan.

So we are done with rent, education loan, now on to health insurance.
The premium paid towards health insurance qualifies for tax deduction under Section 80D. The benefit is available if you are paying premiums for yourself, your spouse, children and parents.

Hang on, what if I am covered under the company's group health insurance policy? Would I need to get another policy?

See, it is always better to buy your own health insurance policy. If you still believe that you don't need to buy an individual health cover, at-least buy it for your dependent parents.

How much deduction can I claim though?

You can claim a maximum deduction of Rs 25,000 on the premiums paid. If the premium paid by you is towards the health policy of your parent, who are above the age of 60, the maximum is capped at Rs 50,000. So you can maximise your tax benefit under section 80D to a total of Rs 75,000.

Not bad! So what all do I need to claim this deduction?

When you buy a health insurance policy, the insurer usually issues a certificate for the premiums paid. If you don't have it, ask your insurer. Else, the insurance policy or any receipt issued showing that you have paid the premium by cheque is sufficient. You also need to submit a copy of this document to your office to ensure that they take it into account while calculating the tax to be deducted from your salary.

Also remember that to claim this deduction, the premiums have to be paid digitally or by cheque. No claiming on cash payments!
All these were expenditures, noted. But what about investments?

Section 80C is probably one of the most popular tax-saving options. Investments up to Rs 1.5 lakh in the many avenues under this are deductible from your gross total income.
So, a contribution to EPF would automatically become eligible for deduction from your gross total income (mainly your salary) before tax payable on it is calculated. Then there are the various expenditures as mentioned earlier.
So, total your investments and expenditures which already qualify for tax benefit under this section. If the total falls short of the Rs 1.5 lakh limit allowed per fiscal, then look at investing the balance in other investment avenues specified under section 80C.

For someone younger, it would be better to invest in a tax-saving mutual fund, also called ELSS. This options comes with a mandatory lock-in period of three years, which is one of the shortest tenures for tax saving investments under this section.
Added to that, equity investment is good for the long term, in fact ideal for young investors. They have time on their side and studies show that over such a long time period, equity has often yielded better returns compared with pure debt-oriented investments.

PPF is also a good option. But mind you, it comes with a long lock in period of 15 years.

Now there might be just a couple of weeks left till the end of the fiscal but that does not mean that there is no way for you to escape higher taxes.

Even if you have not made any investments yet, it is not too late. And if you do not have enough money left to make those tax-saving investments, use some of the expenses that we mentioned.

Don't forget to submit all the right documents to your employer on time to prevent excess TDS from your salary.

That will be all from us for this week. Come back next week for more tips on managing your money wisely.

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