Fear about taxes, know the different options to save tax in India.
Every citizen of India has no choice other than to pay taxes to the government based on the income they earned through various sources.
There are some methods to save tax on your earnings and we will be going to discuss this here.
When we are in March, most people will be in the confusion and searching for all possible ways to save more money from their income thereby paying fewer taxes.
Most people don’t like to pay taxes thereby showing lesser income on what they earn actually every year.
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There are many tax-saving options available to save money from your income and reduce your tax.
Do you really want to know what are these ways and tips to save income tax?
You can save a lot of money from your income by paying less tax when you do proper tax planning to save tax.
1. Why is Income Tax Mandatory?
As a citizen of India, everyone is liable to pay taxes based on the income they earned in a financial year.
Many people won’t pay a tax when they were given a choice.
But, to the government, the income tax we pay is the only source of revenue used for the country’s infrastructure and economic development.
Paying income tax is one of our prime duty and it’s our deemed responsibility to contribute towards our nation’s growth and help to maintain it.
Anyone who earns an income of more than Rs. 2,50,000 are liable to pay taxes for the excess amount that crosses the set threshold by the government.
Most people avoid paying taxes by showing their yearly earnings less than the tax slap limit.
But to be practical you can show more and save tax on the income under various sections as per the law.
No matter what’s your income will be every month, the government has laws where an individual can claim exemptions and deductions.
We will further discuss these different tax-saving options available for all individual and HUF taxpayers in the country of India.
2. Tax Saving Options
There are some effective tax-saving options available which you may not be aware of.
After reading this article, note down these different options and save more money on your income by paying lesser taxes.
This is suitable for all classes of taxpayers such as salaried individuals, professionals, businessmen, etc.
2.1. IPC Section 80C, 80CCC, 80CCD
You can save your income from the tax deduction up to Rs. 1,50,000 by investing your income under the Government allowed investment schemes.
Some of the common schemes such as PPF Accounts, Tax Saver FD, Pension Plans, National Savings Certificate, etc are suitable instruments.
If you are not familiar with these investment options, you can ask for help from any chartered accountant located in your area.
However, invest your earned money in all possible investment instruments to reduce your tax liability.
The maximum deducted allowed under these three sections was up to Rs. 1,50,000 INR.
Invest your money in the National Pension Scheme(NPS) and enjoy an additional benefit of Rs.50,000 under section 80CCD.
Different types of Investment Options:
- Equity Linked Savings Scheme
- Public Provident Fund
- Employee Provident Fund
- Pension Plans
- Tax Saver Fixed Deposit
- National Savings Certificate
- National Relief Fund
2.2. IPC Section 80D, 80DD, 80DDB
The government cares for every citizen of India and allows tax benefits on the expenses of taking insurance policies.
You can take insurance policies for yourself, your spouse, your dependent children, and/or for your parents.
You can claim a maximum tax deduction of up to Rs. 50,000 in any financial year.
The premium for the insurance policies is eligible for the tax benefit of up to Rs.25,000.
If you pay the insurance premium on behalf of your parents, an additional claim benefit of Rs. 25,000 is eligible for you to save tax on your income.
You can save tax by paying an insurance premium for your personal, spouse, and/or children’s insurance policy.
Get an additional taxless benefit by paying for their insurance policies under section 80D.
You can also save more tax for paying for handicapped dependants (SEC. 80DD) and specified diseases (SEC. 80DDB).
2.3. Home Loan
When you have taken any home loans you can claim the tax deduction for the repayment of the principal amount.
The advantage of this tax-saving option is you will get tax exemption on both for the repayment of the principal amount and the interest.
There is a maximum tax benefit claim available up to Rs. 2,00,000 under section 80C and section 24.
Most people prefer this method as their number one tax saving option as an individual can claim under 3 different sections.
2.4. Education Loan
A parent can avail of tax benefits on education loads for this dependent child.
If you are a parent to your child (or) a legal guardian to any student, you can claim deduction under section 80E.
There is no maximum limit for claiming tax benefit but this applies only to the repayment of Interest and not for principal repayment.
2.5. IPC Section 80CCG
This is a one-time tax saving benefit for individual taxpayers who are investing in mutual funds.
This scheme also includes shares of specified companies and plans as directed by the Government.
This tax saver option is available to the taxpayer whose annual income is less than Rs. 12 Lakhs.
You can claim tax only one time and it is not eligible for the person who has invested earlier in any other mutual funds/shares.
2.6. Long Term Capital Gains (LTCG)
Long Term Investment Policies are also eligible for tax benefit and you can go taxless by investing in long-term capital asset plans.
You can earn either by selling the instruments or earn interest during the holding period.
The investments that are made for more than 3 years are eligible for tax benefits.
2.7. IPC Section 80G
You can save tax by donating to any charity, social organization (or) any contributions to national Relief Funds.
The sum of the total Rs. 10,000(maximum) can be saved if you pay in cash and more if you paid via bank cheque.
The Tax Payer is allowed for a 100% tax deduction from his/her donation made for such reasons.
3. Tax Saving Investments
Earlier we have seen various options that help you to save money on tax.
While choosing the right option to save tax, you should consider other factors such as your returns, money liquidity, and the risk involved in all the above-said options.
Make sure how the returns will affect you, the scope of making money for a very long time without paying taxes, easier settlements, and much more.
Now we will discuss some tax-saving investment schemes available which we can use to safely save our income without paying heavy taxes.
But if you want to save tax, you should decide within this year because only a few days are left at the close of this financial year.
3.1. Equity Linked Saving Scheme (ELSS)
In this scheme, you can invest your income in diversified equity shares through SIPs.
However, this process will be executed only by certified professional fund managers who can be able to predict the market trend in the right way.
Hence investing in the right portfolio can minimize the risks involved in the SIPs.
There are two kinds of investment schemes – one is an investment of single bulk money up to a limit of Rs. 1.5 Lakhs (or) the amount invested with a lock-in period of 3 years.
The investment on ELSS through SIPs yield high returns but always remember that the investments are high risk and based on the present trend in the equity markets.
The return on the investment is quite high between 12 – 15%, unlike other savings schemes and the investment can be accounted for zero tax under section 80C.
Remember: The interest earned is tax-free once you passed your lock-in period of 3 years.
3.2. Public Provident Fund (PPF)
The investment in this instrument is just like the above ones and this tax-saving option is available for both salaried as well as non-salaried class people.
Both the principal and the interest earned are accounted for as the source of tax-free income.
One can easily open a PPF account with their own name (or) on behalf of a minor in the nearby post office or bank.
The drawback is its compulsory lock-in period which is 15Yrs, and the return on investment is 7.6% per annum currently.
If you want to withdraw your investment, you can partially withdraw but it is taxable if you have not held this fund until maturity.
You can invest Rs.1,50,000 (maximum) per year on PPF for the tax benefits under Section 80C.
3.3. Employers Provident Fund (EPF)
This is another avenue that helps salaried individuals to save tax by investing part of their monthly salary through this voluntary savings instrument.
The employer will deduct 12% of the employee salary and contribute 3.67% as the employer contribution.
The annual interest rate on this instrument is 8.65% and the maximum amount you can claim tax benefits was Rs. 1.5 lakh.
The interest earned is also tax-free if you hold the funds for more than five years.
If the employee wants to increase his contribution, he can do so up to 100% of his basic salary.
When doing so it becomes a Voluntary Provident Fund (VPF), but both VPF and EPF have the same rules.
3.4. Sukanya Samriddhi Yojna Account (SSYA)
A special small deposit scheme formulated by our honorable prime minister to tackle the major problem of every girl child in India, i.e, education.
Any individual can open an investment account with any bank or post office in the name of a girl child under the age of 10.
Deposit the small portion of your income in this instrument for a greater lump sum maturity value.
One can start with a minimum investment of Rs. 1,000 month by month and the account will be operative for 21 years from the date of opening.
This scheme is eligible to save tax benefits up to Rs. 1.5 lakh under section 80C and this option earn an annual interest of 8.1%.
3.5. Taxing Saver Fixed Deposits
This investment instrument is just like a regular fixed deposit and it comes with the 5Yrs lock-in period.
You can save tax from this option up to Rs. 1.5Lakh with average interest payable is 6 – 8%.
The best part of this tax-saving investment is less risk and guaranteed returns of your principle amount after maturity.
3.6. Investment in House
Availing a home loan either for the purchase of a new home or construction of house property has its own income tax benefits.
You can claim tax deductions on all components of your EMI including both the principal and the interest for that particular period.
The concerned person can claim tax benefit by availing a home loan under section 80C up to Rs. 1.5 Lakhs.
This money including the entire amount invested in various investment schemes.
The tax benefit for the home loan interest component can be claimed as a deduction under section 24 to a maximum amount of Rs. 1.5 lakh.
If the taxpayer owns the house property (self-occupied property) and is not given for the rental purpose.
4. Tax Saving Tips
Every one of us both salaried and business class people are looking for available options to save some extra money by paying fewer taxes.
The income tax department of India allows taxpayers to save on their taxes from the total income earned through the different sources.
- You should plan well in advance to reduce the liability on your taxes.
- Be careful in the interest earned on the investments which are maybe taxable next year.
- Diversify your investments into various schemes such as ELSS, LTCG, NPC, PPF, EPF so that you can able to access your funds at ease.
- Do not invest all funds in long-term investment schemes.
- When you need funds at your emergency, short-term investments can assure the availability of liquid.
- Take a home loan to purchase a new home (or) reconstruction where you can save tax up to Rs. 2,00,000.
- If you are a businessman, account your travel and food expenses, which can be filed to save on tax every year.
- In case, a salaried employee can save tax through filing travel allowance, HRA Benefits, 12% or more towards PF contribution.
5. Recommend Ways to Save Tax
Find a better investment plan with the lowest lock-in period, options for monthly investment.
Find higher interest rates and invest up to Rs. 1,50,000 in a financial year and reduce your taxes under section 80C.
Insure in your personal health, your spouse/children, and your parents, and if possible take life cover insurance.
Claim tax deductions up to Rs. 25,000 in any fiscal year under section 80D for payment to these insurance policies.
Take a home loan and claim tax exemption up to Rs. 50,000 in the financial year.
6. When to plan your Income Tax Saving?
Start your tax-saving plans right from the beginning of the financial year which most taxpayers postpone until the last quarter of the year.
At the last minute, you will be hurried to choose the wrong plans and investment schemes which will end up with no use at all.
You should create enough time to plan your investments to fulfill your long-term goals when you start from the beginning of the financial year.
Conclusion
There are many different ways to save tax in India that will help you save more income from your monthly salary (or) your business revenue.
The amount received as a gift on a marriage or any other function can save you more money from tax liability.
Purchase any health insurance (or) life insurance for your own personal safety, your spouse and/or children, your parents can save more tax.
One can increase his/her wealth by choosing better tax-saving options.
Planning your income to save tax is a kind of earning more money from your income (Smart people think this way).
So, let’s begin saving tax in this financial year (or) make a plan for your next financial year and develop more wealth and health.
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