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Best Ways To Save Taxes In India
It’s nearing the end of the financial year again and paying taxes becomes the most worrisome task for most taxpayers. The beginning of tax season is marked with unnecessary hustle for submission of rent receipts and investment documents and waiting for Form 16 from your employer to file your taxes. To be honest, it can become very tiring if you don’t know what you are doing. So, we’ve come up with a list of ways that you can save on your taxes. Thank God for small mercies.
Insurance
Buying an insurance policy is one sure shot way of saving on tax. Although there are various insurance policies you can opt for, two of the best policies from the point of view of tax benefits are Life Insurance and Health Insurance.
Life Insurance
The premium paid for a life insurance policy is liable for deductions under section 80C of the Income Tax Act. Under section 80C, premiums that you pay towards a life insurance policy qualify for a deduction up to ₹1.5 lakh, while Section 10 (10D) makes income on maturity of the policy tax-free if the ...
... premium is not more than 10% of the sum assured or the sum assured is at least 10 times the premium.
Health Insurance
The amount you pay towards your health insurance premium claimed can be claimed as a deduction under Section 80D. You can claim ₹25,000 annually for a health insurance policy for yourself. If you also pay the premium for a health insurance policy for your parents, you can claim up to ₹50,000 for the same as well.
Investment
There are a host of investments that can be claimed under section 80C. Investments not only generate returns, but can also be claimed as deductions while calculating total taxable income.
Equity Linked Savings Scheme (ELSS)
The investments that you make in ELSS are eligible for deduction under Section 80C of the Income Tax Act, 1961. ELSS has the potential of giving the taxpayer higher returns compared to other tax-saving investments as it is equity-linked, but this means that it comes with higher risk. There is no limit on the amount that can be invested in any of these schemes, but the tax benefit is available only for ₹1.5 lakh.
Sukanya Samriddhi Yojana
Sukanya Samriddhi Yojana (SSY) is a small deposit scheme for the girl child launched as a part of the 'Beti Bachao Beti Padhao' campaign. The scheme offers you tax deductions under 80C. You can open the account on behalf of your daughter any time after her birth till she turns 10. The amount has to be deposited in the account for a period of 15 years and the account will be mature after 21 years. The minimum annual deposit has been reduced to ₹250, which can go up to ₹1.5 lakh and the returns are tax-free in this scheme.
Public Provident Fund (PPF)
Public Provident Fund or (PPF) is a very popular investment option as it offers assured returns. Interest is compounded on an annual basis and the maturity period of the scheme is 15 years. The least that you can contribute towards PPF is ₹500 and the maximum contribution allowed is ₹1.5 lakh in one year. The amount you contribute towards PPF is eligible for tax deductions under Section 80C of the Income Tax Act every year.
National Savings Certificates (NSCs)
NSC is a tax-saving instrument with a five-year maturity period. A person can purchase an NSC for as low as ₹100 with no limit on the investment amount. Any investments in NSC are eligible for deduction under the overall limit of Section 80C. This interest is compounded annually and is taxable. This is a cumulative scheme, which means the interest is not paid to the investor but instead accumulates in the account. Each year’s interest is reinvested and is then subjected to fresh deductions under 80C, thereby making it tax-free. The final year’s interest, when the NSC matures, does not receive a tax deduction as it does not get reinvested, but is paid back to the investor along with the interest of the previous years and the capital amount.
Five-year Post Office Time Deposit (POTD) Scheme
A five-year Post Office Term Deposit (POTD) is a savings and investment scheme similar to the fixed deposits (FD) offered through banks. You can deposit money for a fixed period and earn a guaranteed return through the tenure with POTD. Only a five-year POTD qualifies for tax-saving under section 80C. The interest on these is compounded quarterly, but paid annually.
NABARD Rural Bonds
The bonds issued by NABARD (National Bank for Agriculture and Rural Development) qualifies for deduction under section 80C. The availability of these bonds for investment depends on the government notifications.
Contributions to National Pension System (NPS)
National Pension Scheme or NPS subscribers, whether salaried or self-employed, qualify for an additional tax deduction under Section 80CCD (1B) of the Income Tax Act. This deduction is in addition to the ₹1.5 lakh allowed under Section 80C. Any contribution made by an individual to the National Pension System (NPS) is allowed as deduction under section 80CCD (1). Also note that the combined deduction under section 80C and 80CCD (1) cannot exceed ₹1.5 lakh.
Make this year a little less hectic with the right steps towards tax saving. If you want investments and tax saving to go hand in hand, then you know which steps to follow to achieve your financial goals. If you are a first-time taxpayer, these schemes should get you started in the right direction.
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