From basic necessities like food, clothing, and shelter to electricity, internet, and movie tickets, we pay tax on everything in our daily lives. Although we cannot avoid paying taxes, there are several ways to reduce the amount of tax we pay. This article will go over the top ten tax-saving options in India.
In India, taxes are divided into two types: direct taxes such as income tax, property tax, and asset tax, and indirect taxes such as GST, VAT, and excise tax.
While we cannot control or avoid indirect taxes, we can certainly reduce our direct tax outflow through timely and prudent planning. Contrary to popular belief, the best time to invest in tax-saving options is at the start of the fiscal year. As a result, your investments reap the full benefits of compounding.
Let us now look at how you can use these ten tax-saving strategies to save money.
Public Provident Fund
PPF is an excellent tax-saving option because it is eligible for a deduction of up to Rs 1.5 lakhs per year under Section 80C of the Income Tax Act. It has also provided decent returns in the 7% – 9% range. PPF is one of the safest investment and tax-saving options in India because it is backed by the government.
Aside from that, in PPF, the principal amount, interest income, and maturity income are all tax-free. The only disadvantage is that PPF has a 15-year term, making it unsuitable for short-term investments.
National Pension Scheme
The National Pension System (NPS) is a government-sponsored pension plan that is also tax-efficient. In addition to the Rs 1.5 lakhs 80C deduction, individuals can claim an additional Rs 50,000 tax deduction under section 80CCD (1B). NPS was created to allow individuals in the non-government sector to save and plan for their own retirement.
Premium Paid for Life Insurance Policy
You can deduct the premium you paid for your life insurance policy. The premium paid for a life insurance policy can be claimed under section 80C’s Rs 1.5 Lakh limit. However, in order to qualify for this benefit, your insurance coverage must be 10 times the amount of your premium.
National Savings Certificate
Another government-backed tax-saving option for risk-averse individuals is the National Savings Certificate. While there is no maximum investment limit, the maximum deduction under section 80C is Rs 1.5 lakh. NSC has a five-year lock-in period and can be a good short-term tax-saving option for risk-averse individuals.
Equity Linked Savings Scheme
ELSS funds are equity-oriented mutual funds with a three-year lock-in period. Among all other tax-saving options, ELSS funds have the shortest lock-in period. Investments in ELSS funds up to Rs 1.5 lakh are tax deductible under section 80C of the Income Tax Act.
Home Loan’s Principal Amount
The principal repayment of your home loan is deductible up to Rs 1.5 lakhs under Income Tax Act Section 80C. Furthermore, interest paid on your home loan up to Rs 2 lakhs can be claimed under section 24B of the Income Tax Act.
5-Year Tax Saving FDs
One of the most popular tax-saving options for senior citizens and retirees is a 5-year tax-saving fixed deposit. It is also eligible for a deduction of up to Rs 1.5 lakhs under Section 80C. TDS, on the other hand, is levied on interest earned. To avoid TDS, submit a 15G form.
Sukanya Samriddhi Account
Sukanya Samriddhi Account is a government-backed initiative that encourages parents of girl children to save for their child’s future. Section 80C of the Income Tax Act allows you to deduct up to Rs 1.5 lakhs. Apart from the principal invested, even the interest income is tax-free.
Children’s Tuition Fees
A parent can claim a tax deduction for tuition fees paid to a university, college, school, or other educational institution. Other fee components, such as development and transportation fees, are not deductible under Section 80C.
Tuition fees for up to two children are tax deductible for salaried individuals under section 80C’s Rs 1.5 lakh limit.
Interest Income on savings account
Income from savings accounts is tax-free up to Rs 10,000 for individuals under the age of 60 under section 80TTA. Interest income of up to Rs 50,000 is tax-free for senior citizens under section 80TTB.
There is no deduction for FD interest under Section 80TTA.
Tax planning is an essential component of a successful financial plan because it allows you to save tax and increase your savings, both of which can be used to achieve your financial objectives. Keep in mind that stocks and mutual funds are among the best investment options available in India as you plan for your financial goals.