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How You Can Save Tax Through Investments and Expenditures Towards Your Kids

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How to invest money is one of the most common questions asked by people today. Some people want to invest for a better financial future, whereas others are looking for tax-saving instruments. 

If the purpose of your investment is saving  tax, then numerous investment instruments offer tax benefits. Besides this, you can save tax by claiming deductions for the amount that you have invested or paid towards your children’s education. Here are some suitable investment plans that can help you save on taxation even if you invest in your child’s name. 

  • Invest in traditional insurance plans and Unit-Linked Insurance Plans (ULIPs)

You can make investments in financial instruments like traditional insurance plans and ULIPs.  The premium that you pay towards such investment plans is tax-exempt as per Section 80C of the Income Tax Act, 1961. Here, the maximum permissible amount that you can claim as a deduction is INR 1.5 lakh per annum. 

  • Open a savings account at a bank 

Market-linked investments, such as equities are subject to risks. So, if you do not want to take any risk, you can save the money for your child by opening a savings bank account. The income earned from the interest is tax-free up to INR 1,500 a year per child for two children as per Section 10 (32) of the Income Tax Act, 1961. 

  • Avail  of tax exemptions on expenditure towards education or tuition

You can claim a maximum deduction of INR 1.5 lakh per year as per Section 80C of the Income Tax Act, 1961. You can also claim deductions towards the education fees if you have not yet exhausted this limit. Here, you can claim deductions for a maximum of two children every year. If you are a salaried individual, you can get exemptions under Section 10 of the Act for the amount paid towards hostel expenses and tuition fees for two kids. Here, you can claim a maximum of INR 100 per child per month, which comes to a yearly amount of INR 2,400 as education allowance plus INR 300 per child per month, which is INR 7,200 per year as hostel allowance. 

  • Invest in health insurance 

You can even save tax on the premiums that you pay for the health insurance of your spouse and children. You can seek deductions under Section 80D of the Income Tax Act, 1961. 

  • Avail of deductions under Section 80DDB for dependents with a disability 

If you have to pay high medical costs towards the treatment of your spouse, elderly parent, or child with a specific disease or disability, you can claim tax deductions under Section 80DDB of the Income Tax Act, 1961. Here, you can claim a maximum of INR 40,000 a year or deductions on the actual medical expense, whichever is lesser if the dependent person with a specific disability is below the age of 60. If the dependent is above the age of 60, you can claim a maximum deduction of INR 1 lakh per annum or on the genuine medical expenditure, whichever is the lower amount. If the dependent has a disability between 40 to 80 percent, you can claim a maximum deduction of INR 75,000. If the disability of the dependent is more than 80%, you can claim a maximum of INR 1.25 lakh per annum. 

Additionally, you can claim tax deductions on the education loan of your children as per Section 80E of the Income Tax Act, 1961. Now when you know how to invest money to save tax, it is time that you plan your tax saving investments properly. It is advisable to consult your financial advisor to get better guidance as they have a sound knowledge about your income and finances. 

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