Legally, every Indian must pay taxes. However, everybody spends their entire year working hard to save money. These savings can often be wiped away by the income tax you would have to pay. Most people think that tax is something that you cannot avoid paying. However, there is way you can reduce your tax if not eliminate it. Suppose you optimally choose the old tax regime; you can reduce your annual tax liability under Section 80C of the Income Tax Act.
Section 80C savings
Section 80C of the Income Tax Act offers various tax-saving solutions for up to Rs. 1.5 lakh. Let’s look at some of these solutions to find out which combination can help you save tax.
- Unit-Linked Insurance Plan (ULIP)
ULIPs combine insurance and investments for investors. ULIPs create wealth while providing life insurance. A portion of the corpus is invested in equities, debt, or a mix of the two. ULIPs can be used to save for college, retirement and as a tax saving plan. Section 10 exempts maturing policy returns from income tax (10D).
- National Pension System (NPS)
The National Pension System (NPS) provides post-retirement pensions to working professionals and unorganised sector workers. 18 to 60-year-old Indians can open NPS accounts. Additionally, section 80CCD(1B) offers a tax break for investments of Rs. 50,000. NPS contributions are locked in until the investor turns 60.
- Life Insurance Policies
The tax advantages of life insurance are covered under Section 80C of the Income Tax Act. Life insurance premiums paid for you, your spouse, or your dependents are all tax-saving.
- Public Provident Fund (PPF)
Public Provident Fund (or PPF) is a common and popular investment scheme used to save tax. Issued by the Indian government, it’s a safe investment. This plan has a 15-year lock-in. After 15 years, you can add another five. Your PPF account must be funded with a minimum of Rs. 500 and a maximum of Rs. 1.5 lakh annually. Contributions, interest, and maturity funds are tax-free. One partial annual withdrawal from the 7th year onward is permitted. It would help if you used an income tax calculator to decide the right investment amount.
- Employee Provident Fund
EPF is a retirement saving scheme backed by the Indian government and is open to all salaried employees. You must contribute 12% of your basic salary + Dearness Allowance to this scheme. This sum is deducted monthly by your employer and put in the EPF. Your employer matches your contribution to the fund. As per the latest data issued by the Employee Provident Fund Organization, there are more than six crore EPF subscribers. Interestingly, your EPF balance (including the interest you receive) is tax-free if you withdraw your money after five years of continuous service.
- Sukanya Samriddhi Yojana (SSY)
SSY is a government savings scheme for the ‘girl-child’. It is a part of the 2015 ‘Beti Bachao, Beti Padhao’ programme. Post offices and several public and private banks nationwide provide SSY accounts. Quarterly, the government announces the SSY interest rate. The minimum annual investment is Rs. 250; the maximum is Rs. 1.5 lakh. After the girl turns 18, she can partially withdraw from her schooling. You may withdraw 50% of the previous fiscal year’s balance annually. The interest accumulated and the maturity amount are tax-free. Sukanya Samriddhi Yojana has an EEE (exempt-exempt-exempt) status.
- National Savings Certificate (NSC)
The Indian government backs the NSC. All Indian post offices offer NSC accounts. Risk-wise, it’s similar to the PPF because it guarantees returns. The NSC has a five-year lock-in, unlike the PPF. You can invest more than Rs. 1.5 lakh each year because there is no upper restriction. For Low-risk investors, it’s an excellent way to generate steady profits and avoid tax.
- Tax-Saving Fixed Deposits (FDs)
Any Indian resident can open a tax-saving FD.
Note:
- They have a lock-in duration of 5 years, and the minimum investment has to be Rs. 1,000.
- Tax-saving FDs do not allow premature withdrawal.
- The interest in this investment is taxable.
- Equity-Linked Savings (ELSS)
ELSS is an open-ended mutual fund that invests at least 80% in stocks. As a result, ELSS fund returns vary with market performance. Their prospective yields and a short lock-in period of 3 years make them popular with investors.
How to plan for tax-saving investments?
You can attain your financial goals rapidly by making a tax-saving plan at the beginning of the financial year rather than in the 4th quarter.
Here are a few practical methods to help you arrange your tax-saving investments efficiently:
- Use an income tax calculator to help you understand your tax liability.
- Check if your investments or premiums are tax-deductible. Make a strong tax saving plan strategy and invest correctly based on your goals and risk profile.
- Invest the necessary amount to meet your financial goals while saving tax.
Conclusion
Please note that each tax benefit is applicable only if the provisions and T&C mentioned in the Act are met.
You can minimise your annual tax payments with proper planning. So, prepare intelligently and begin investing from the start of the financial year.
