Did you opt to continue with the existing tax regime for the 2021-22 fiscal year? So you have till March 31, 2022 to complete your tax saving investment/ expenditures.
For the 2021-22 tax year, an individual can choose the new tax system that offers lower and favorable tax rates without deductions or tax credits or continue with the old tax system of higher tax rates along with various tax credits/deductions.
If you plan to opt for the old tax regime in FY 2021-22 and you haven't yet finished the financial products to invest in to reduce your tax expenditures for the year, you may want to consider these online options to save time on paperwork.
5-year tax-saving bank fixed deposit
The most hassle-free tax savings investments online is the Five Year Tax Savings Fixed Deposit (FD). If you have a KYC compliant bank account and access to Internet banking, you can easily invest in a five-year tax savings bank fixed deposit.
All you have to do is log into your Net banking account and invest from there. When making an investment, make sure you haven't enabled the auto-renew option (unless you want to) or on the expiration date, your FD tax savings bank will automatically renew for the next five years. Once the investment is made, early withdrawal is not allowed in case of tax savings. If the auto-renew option is not selected, the deposits due to expiration go directly to your bank account.Bank FDs offer two interest payment options: cumulative or non-cumulative. The interest earned must be added to the individual's income and is fully taxable. Banks offer higher interest rates for seniors, usually 0.50% higher than those offered on purchase contracts by non-seniors.Keep in mind that although a product like this helps save taxes and preserve your capital, it won't help create wealth in the long run. This is because, in most cases, FD Bank's post-tax returns are lower than the inflation rate for those in the 30% tax bracket.
Term life insurance policy
An individual can purchase a term insurance policy or a unit-linked insurance plan (Ulip) online. However, buying a term life insurance policy online at the last minute may not be successful, as you may be called for medical tests or the insurance company may ask for more information before issuing the insurance policy to you.Your tax benefits for the 2021-22 tax year depend on the date of issue. If the issue date is after March 31, 2022, you will not get the tax benefit for the 2021-22 tax year.“Issuing a life insurance policy is usually a long process, often taking 4-7 days,” says Amit Chhabra, Head of Health Insurance, Policybazaar.com. This is because while buying a term life insurance plan, you have Clients to undergo telemedical tests and sometimes a physical medical examination if the client has a pre-existing condition. Moreover, apart from your health, life insurance companies also examine your financial history to assess your health. Financial value before the insurance policy over 60 percent of the policies are issued to the customers instantly, provided they purchase the policy when they are young and do not have any pre-existing diseases. These are mostly policies where customers have pre-existing conditions such as diabetes and hypertension. Individuals who want to take advantage of tax benefits with protection coverage when purchasing insurance products should not wait until the last minute to purchase insurance and must rather people at the earliest. The tax benefit can only be taken advantage of after the document is issued to customers.”
One can buy Ulips online by visiting the insurer's website. Since there is no broker, no commission is paid to any broker when it comes to online Ulips. The application and payment process will be done through Netbanking or credit card entirely online.
Please note that Ulips bought on or after February 1, 2021, at an annual premium of over Rs 2.5 lakh, will be taxed on maturity in the same way as shares and mutual fund capital.
So, for the current fiscal year 2021-22, if the annual premium exceeds Rs 2.5 lakh, at the time of maturity, it will be taxed. The Central Board of Direct Taxes (CBDT) has issued guidance by notification dated January 19, 2022 regarding taxes on Ulips.
If you are planning to open a Public Provident Fund (PPF) account to save on taxes, be sure to start the account opening process as soon as possible. It may take a few days to open a PPF account with a particular bank itself. You can only complete the online form by logging into your online bank account. Next, you will need to print the account opening form and send it along with other documents to the bank branch for verification.
However, if you already have a PPF account, the funds can be transferred from the linked bank savings account or from another bank account easily through net banking. To avoid having to manually transfer funds to your PPF account, you can send standing instructions to the bank.
Please note that the maximum amount that can be invested in a PPF account is Rs 1.5 lakh in a financial year.
Home loan repayment/prepayment
If you have an ongoing mortgage loan, there are two types of tax benefits available. A tax deduction is available under Section 80C of the Income Tax Act of 1961 on the principal amount repaid on the mortgage loan. Also, the interest paid on the loan gets tax deduction of a maximum of Rs 2 lakh under Section 24.
To save more on taxes, you can prepay a portion of your home loan. Paying off your home loan early will help you take full advantage of the available tax savings limit. For example, if the principal amount repaid is Rs 1 lakh, by making a home loan advance payment which increases the amount paid, full use of Section 80C deduction of Rs 1.5 lakh can be made.
Paying off your home loan early will also help you save on interest cost, as this will lower your total interest expense while reducing your loan term. The higher the prepayment amount and the longer the term, the higher your savings.
To prepay home loan online, you need to add home loan account as third party account and then transfer money using online banking facility. Prepaying a loan online is faster than going to a bank branch with a cheque.
Health insurance policy
The novel coronavirus pandemic has made many people realize the importance of having a health insurance policy. Anyone can purchase health insurance online by visiting the website of any general insurance company or a standalone health insurance company or aggregator. However, there could be a medical proof requirement or the insurance company will not allow online buying above a certain age or insured amount. Insurance companies generally allow people up to age 45 to purchase health insurance plans online.
ELSS mutual funds come with the shortest three-year insurance period among other options like PPF, EPF, FD tax savings, etc. Investments can be made online by visiting the finance house website or the collection portals. However, be sure to comply with KYC. Although there is no maximum amount that can be invested, the maximum deduction that can be claimed in a tax year is Rs 1.5 lakh under Section 80c. When investing online, you can choose between regular and straightforward options. Compared to the regular option, the direct option has lower expenses as it is free from distribution commission. In the long run, it will translate into significant savings. However, choosing the right ELSS fund is something one must do diligently.
What you should do
When making online transactions, please ensure that the transaction has been completed successfully and that you receive a transaction confirmation. If for any reason your transaction is unsuccessful (and you don't try again), you may miss out on the opportunity to complete the tax savings process for the 2021-22 tax year, which in turn will increase your tax expenses.
How do I check my contribution to this year's EPF?
Anyone can check their total EPF contribution for the fiscal year with their pay slips or EPF statement.
For government employees, what is the minimum to earn tax-free interest?
If EPF contributions do not exceed Rs 5 lakh in a financial year, provided there is no government contribution, the interest earned will remain tax deductible.
How is interest charged on tax-saving term deposits?
Interest earned on tax savings deposits will be taxed at the income tax rates applicable to your total income. In addition, TDS will be charged if the total interest exceeds Rs 40,000 in the financial year (Rs 50,000 for senior citizens).
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