Tax Saving Tips for Young Earners

Last Updated at: Oct 27, 2020

All the individuals especially the young earners, should try to take advantage of the numerous benefits that are offered under the Income Tax Act, 1961. By doing so, one may reduce the total taxable money to a great extent.

In India, Income tax is imposed on the basis of the income tax slab system. Different prices are prescribed under each slab. In order to reduce the tax liability under any of the given slabs, one may avail the benefits of the numerous exemptions and deductions.

Some of the great tax savings tips for the young earners.

Investing in the Equity Linked Saving Scheme (ELSS)

Equity Linked Saving Scheme (ELSS) is an expansion of equity mutual funds. The performance of this investment vehicle is openly related to market performance. Also offering high returns, ELSS funds assistance in saving tax. Under the Section 80C of the Income Tax Act, 1961 Investments in the ELSS are allowed for the tax deduction up to INR 1.5 lakh in a financial year.

Purchase term insurance

As suggested by the name, a term insurance offers coverage for a fixed period of time. In case of a death during the policy time, the insurer pays the recipient ‘Sum Assured.’ A term insurance plan is one of the highly beneficial tax-saving financial instrument. One may take the benefit of tax deduction up to INR 1.5 lakh under the Section 80C of Income Tax Act, 1961 on the payments made for self, spouse, and children who are dependent. Furthermore, the death benefit amount is tax-free under Section 10(10D) of the Act.

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Investment in health insurance

Given the mounting medical inflation, it only becomes essential to purchase a health insurance cover. By doing so, one may relish peace of mind knowing that their hospitalization expenditures will be taken care of in case of a medical emergency. Besides enjoying the health coverage, one may even avail the tax benefits on the premiums paid towards their policy. One may even take the benefit of tax deduction up to INR 25,000 for self, spouse, and children who are dependent.

Repaying education loan

An education loan helps one to finance their higher education. A lot of students borrow the education loans and repay these education loans through the consistent Equated Monthly Installments (EMIs). Identifying this issue, the interest factor of the education loans has been made qualified for tax benefits. So, in this way, one may take the benefit of tax deduction on the interest component under the Section 80E of Income Tax Act, 1961 for eight subsequent years from the commencement of the loan repayment. One should keep in mind that there is no upper limit on the amount that is deductible.

Taking privileges under Section 80TTA

Young earners storing their funds in the savings account may avail them tax benefits. According to the Section 80TTA of Income Tax Act, 1961, interest on the savings account up to a limit of INR 10,000 is free of tax. So, one may, therefore, earn tax-free income and enjoy the liquidity through the savings account.

Tax saving is an important part of everyone’s financial planning especially young earners as they are in their initial stages of the career. So, one needs to be aware of the income tax slab 2018 -19,  exemptions and deductions that are allowed under the Income Tax Act to get the benefit of them. It is also essential to have some knowledge about the income tax rates, in order to be a good taxpayer.