Your annual income determines the amount of tax you will need to pay when filing the yearly income tax returns. Regardless of one’s tax slab, legal provisions outlined in the Income Tax Act permit salaried taxpayers to reduce their tax liability if they invest in specific financial instruments. Claiming the deductions under these ITA sections ensures substantial savings. For example, houseowners who have made property purchases with borrowed funds can enjoy several income tax benefits on their home loans thereby lowering the debt load.
Additionally, there are numerous instruments and clauses in the ITA that can proffer ample tax-saving options for salaried taxpayers. Here we list down some smart tips and plans for homebuyers.
How to Save Taxes on Your Salary
These popular government-endorsed tax saving schemes can help you build secure investments and reduce your tax liability at the same time:
1.Equity-Linked Savings Scheme
Regarded as one of the best tax-saving options, the Equity-Linked Savings Scheme or ELSS allows you to save up to Rs 46,800 annually under Section 80 C of the Income Tax Act. This plan usually includes a three-year lock-in period, but if you decide to prolong it beyond five years, it will be taken as an extended-term investment. ELSS is tax-exempt if its long-term capital gains are less than Rs 1 lakh annually. You can make monthly payments of Rs 500 as the minimum investment to get started.
2.National Pension System
National Pension System or NPS is a voluntary tax saving scheme where your money goes into a pension fund. The Pension Fund Regulatory and Development Authority (PFRDA) channels the cash into multiple investment areas such as shares, corporate debentures, treasury bills and government bonds. It will grant you tax savings up to Rs 50,000 under Section 80 CCD (1B), which is in addition to the Rs 1.5 lakh cap of Section 80 C.
3.Sukanya Samriddhi Yojana
Specifically designed to help the girl child, this programme is free from taxation. Individuals who have a daughter can open an account with a nominal investment of Rs 250 per year. Further on, you stand to profit from a threefold tax benefit on the principal, interest earnings and maturity amount.
4.Public Provident Fund
Public Provident Fund, commonly referred to as PPF offers higher returns at an annual interest rate of 7.9%. It is completely exempt from taxes and requires a minimum investment of Rs 500 in a single fiscal year. This tax-saving option can prove advantageous over a longer period of time.
5.Tax Saving Fixed Deposits
Tax-saving fixed deposits are usually recommended for unforeseen circumstances. They have a five-year lock-in duration and the incurred interest is subject to taxation with the maximum rate of interest at 7.7% per annum. Investing in these FDs entitles you to tax deductions of Rs 1.5 lakh under Section 80 C. To initiate this instrument, a modest annual investment of Rs 10,000 could be used as a starting point.
6.Life Insurance Policy
A life insurance policy will not only serve as a significant investment but it can also protect the lives of your loved ones. The premium you pay for your policy – whether it is an endowment, money-back or term insurance plan – is tax deductible. The provisions under Section 80 C permit exemptions up to Rs 1.5 lakh in a financial year. If you choose an income-related policy, you can avail tax rebates under Section 10 (10d).
7.Senior Citizen Savings Plan
This particular scheme extends an annual interest rate of 7.4%. It is among the safest tax-saving choices meant to benefit senior citizens. In this case, the Tax Deducted at Source (TDS) is applicable to your quarterly interest earnings.
8. National Savings Certificate
National Savings Certificate or NSC accords fixed investments. Depending on preference, the maturity period can be 5 years or 10 years wherein you receive guaranteed returns at the rate of 7.9% per annum. Although there is no restriction on the purchase of certificates, Section 80 C of the ITA offers tax deductions of Rs 1.5 lakh per year.
Summing Up
While there are varied types of secure financial alternatives available to place your hard-earned money, picking the right tax-saving schemes must be made according to your risk tolerance levels. It should be a well-informed choice that may necessitate judicious thought and planning. Therefore, select appropriate options only after considering all the relevant parameters, namely your income, return on investment, expenses, liquidity, flexibility, convenience and income taxability to optimise your tax savings.