Tax Saving Plans: Top Tax Saving Plans in India that helps to Save your Tax Burden
A slew of tax exemptions and deductions are permitted to Indian taxpayers, as per provisions of the Income Tax Act of 1961. At the time of filing one’s Income Tax Returns, one can claim these deductions. To calculate one’s net income for filing Income Tax Return, tax deductions are subtracted from one’s gross income, and the payable tax is applied on this net income at the applicable tax rate. An active and informed tax planner will understand how such deductions are computed and align her tax-saving plans to serve the purpose of reducing one’s tax burden.
What are Tax saving Plans?
To help taxpayers reduce their income tax burden, Indian tax laws enable one to save tax through tax saving investments and claiming deductions for the same. A tax saving plan is one where an investor has the advantage of claiming benefits on the amount they invested as per prev ailing tax laws. As per Section 80C and 80D of the Income Tax Act, an individual can claim a deduction on the premiums they paid or the investments carried out. Such investments include opting for funds like life insurance plans, equity-linked savings schemes, public provident funds, fixed deposits, and bonds.
Tax Saving Plans in India
Here are some of the avenues for tax-saving one can opt for in India.
➢ Insurance Plans:
Both life and health insurance can be used to reduce one's tax burden. They can help taxpayers save under Section 80C and 80 D of the income tax act.
➢ PPF (Public Provident Fund):
PPF falls under the EEE (Exempt Exempt Exempt) category meaning one can save tax on investment, interest accumulated, and withdrawal.
➢ Bank FD (Fixed Deposit):
Bank FDs have always been popular in India and investing specifically in tax saver fixed deposits can also lower one's income tax. Tax saver FDs come with a lock in period of 5 years.
➢ National Pension Scheme (NPS):
An annual deduction of ₹50,000 over and above ₹1.5 lakhs is available for NPS account holders under Section 80 CCE.
➢ Senior Citizen Savings Scheme:
It is a government backed tax saving instrument offered specifically to Indian citizens over the age of 60. Investments made upto ₹1.5 lakhs qualify for tax deductions.
➢ ELSS (Equity Linked Savings Scheme):
Another 80C investment option, ELSS allows you to save upto ₹46,800 each year in taxes. ELSS comes with 3 years lock in period.
➢ EPF (Employee Provident Fund):
Any contributions made to EPFs enjoy a tax deduction under Section 80C up to ₹1.5 lakhs annually. Withdrawals and interest accrued are also entirely tax-free.
Why Should You Invest In Tax Saving Plans?
Whether a taxpayer is a salaried individual, a self-employed businessperson, or a freelancer, all these individuals work hard to earn their money. On the income they earn, they are mandated to pay taxes, provided this income exceeds a certain threshold. By planning their taxes, one can reduce the burden of taxes that fall on an individual while maximizing their savings. A slew of financial instruments also serves the purpose of saving on one’s taxes.
In fact, the mark of a good tax saver instrument is not that it can simply help in reducing one’s tax burden, but also offer liquidity, returns, and safety. The ideal financial instrument will save your taxes, while simultaneously
allowing you to reap the benefits in the form of decent funds as well as the flexibility to withdraw these funds. By investing in these tax saving plans, individuals can create the habit of saving money over time.
How You Can Save Tax under the Income Tax Act of 1961?
As per the 1961 Income Tax Act, the following ways can be used to reduce one’s tax burden.
● Section 80C, 80CCC, and 80CCD
(1: An aggregate deduction upto ₹1.5 lakhs is possible each year. One can save their taxes by investing in one or more of the following tax saving plans — from simple life insurance to a ULIP plan, a pension plan, and others.
● Section 24:
If you have a home loan that needs repaying, you are allowed to claim a deduction of interest paid for the same as per Section 24. This deduction is over and above the deduction for repayment of the home loan’s principal amount allowed under Section 80C, thus it is a part of the previous point.
● Section 80E:
As per Section 80E, you are permitted a tax deduction to the degree of the interest you pay on an education loan.
● Section 80G:
This section enables a tax deduction on any amount paid by you toward relief funds, donations to charities, social organizations, and more.
Tax saving plans allow you to reduce your annual tax liability. Ensure you choose a good tax saving instrument which -in addition to reducing your tax liability- offers liquidity, returns and safety.
Tax benefits are subject to changes in tax laws. Kindly consult your financial advisor for more details.
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