How to Save Income Tax?
Each year we get reminders from the tax people, the chartered accountant or the employer that it is the time of the year to plan your taxes. In all likelihood, your reaction isn’t going to be like somebody just gifted you something precious.
Let’s face it ‐ most of us are resistant to paying taxes, and at some point in our lives, we all would imagine about living in a tax-free world.
Apart from the fact that taxes are always viewed as a financial burden, what further adds to the stress is lack of general knowledge about tax-planning. A majority of taxpayers struggle with fitting the tax-saving piece in the puzzle of their budget.
If you can relate to this, then worry not. We have a detailed and elaborate tax-saving guide to ensure your tax-planning voyage is smooth sailing and relaxing too.
Equity Linked Savings Scheme:
Equity Linked Savings Schemes are like mutual funds with a lock-in period of three years. This is the only scheme that falls under mutual fund category in India, which qualifies for a tax deduction under Section 80(C) of the Income Tax Act. If you want to earn decent returns and also invest for long term, ELSS investments can be an excellent option.
Senior Citizen Savings Scheme:
If you have already retired or applied for voluntary retirement, the Senior Citizens Savings Scheme would be best option as a risk-free tax-saving investment. It is a long-term savings option supported by the Indian government. The maturity period is five years. You can seek anscheme extension of additional three years.
National Pension System:
The NPS is a retirement benefit plan regulated by the Pension Regulatory Fund Authority of India. If you subscribe to the NPS, your money will be invested primarily in equity and debt instruments. The value of the investment on maturity will depend on the performance of these asset classes.
Term Life insurance premium:
The premium in life insurance can allow you to avail tax deductions under Section 80C. Yourself, spouse, dependent children and any member of Hindu Undivided Family are eligible and the tax benefit is an added perk. It would be wise not to consider insurance cover only as a way to save taxes.
Public Provident Fund:
The Public Provident Fund (PPF) scheme is a long-term investment with tax benefits. The current rate of interest on a PPF account compounded annually and the lock-in period is 15 years. Partial withdrawals are allowed from the seventh year.No taxes on the deposit or interest at the time of withdrawal.
National Savings Certificates:
This is type of a fixed-income investment offered by the Government of India. Visit a post office near you for details. The lock-in period is five years.
Tax-saving FDs:
Investing in tax-saving fixed deposits can claim maximum tax deductions of up to ₹1.5 lakh. The lock-in period is five years.
Home loan repayment:
In home loan, the part of EMI that goes towards repaying the principal amount is eligible for tax deductions under Section 80C. The interest does not qualify for tax deductions in this section.
Conclusion:
Before you choose a tax-saving instrument, it is important to factor in the risk level, lock-in period, liquidity and returns. A tax-saver product should also suit your individual needs and stay updated about the latest developments in tax-saving provisions. Other than Section 80C, many taxpayers are not familiar with the other sections of the Income Tax Act using which they can significantly reduce their tax burden. So staying abreast and updating yourself time to time is the key.
Happy tax saving!
