Which are the Top Ways to Save Income Tax? Before starting my talk on actual Tax Planning let me share one small incident that happened with my friend, my friend has made a lump sum investment in ELSS for tax saving purposes on the advice of his friend. This investment was made recently in Feb 2024 (30000 Rs/-). When Sensex was at its peak.
This lump sum investment done in a hurry at the end of the year may or may not give him a good return. This could happen to you also. Your lump sum or one-time investment may not give you a good return if it is made randomly during year end without any planning.
The Financial Year is about to end if you have yet not planned for saving Income tax than you don’t have much time now for tax planning. You must do your tax planning as early as possible so that you can invest before 31st March 2024.
Section 80C of the Income Tax Act allows certain investments and expenditures to be deducted from total income up to the maximum of 1.5 Lakh (Old Tax Regime).
Tax Saving Investment Options
#1 PPF, EPF Investment
PPF refers to Public Provident Fund it is a Long Term Debt Scheme of the Govt. of India on which regular interest is paid. Any Individual can invest in this scheme and can earn a good tax-free return. The Public Provident Fund is the most favorite tax-saving option. One can get a deduction on income for the investment done in this scheme. As this scheme is launched and governed by the government of India it is totally safe investment.
The PPF scheme is for 15 years. The minimum investment required in a PPF account is Rs 500 per year and the maximum investment amount is Rs 100000 per year.
You can open a PPF account in a bank and deposit up to 1.5 Lakh in the year to avail of tax benefits. Apart from tax benefits, you will also paid with decent interest compounded annually.
For Salaried people, EPF is deducted compulsorily from the monthly salary. Contributions made by employees are eligible for tax deduction under Section 80C.
#2 Life Insurance Premium
Payment made in lieu of insurance policy is an eligible candidate for tax deduction under 80C. Life insurance is a way to provide protection to family against any undesirable event. Life Insurance provides the dual benefits of savings and security.
Insurance policies available in the market are many, selection has to be done by you considering your requirement.
If you have yet not taken any life insurance it is advisable to go for a “Term plan” which will provide you with good risk cover at a low premium.
#3 ELSS
The most suitable tax saving option for everyone is ELSS (Equity link saving scheme). The investment made in this scheme for the long term can provide the best returns. ELSS has lock-in period of 3 years meaning one cannot withdraw money before 3 years.
Remember to invest in ELSS always via the SIP route don’t make a time lump sum investment. As investment made in ELSS is exposed to equity & risk is involved in doing so.
What are the deductions allowed under the Old Tax Regime for ITR filing?
#4 Tax Saving Fix Deposit
Investments made in Tax Saving Fix deposit (5 years) in the bank can be claimed for tax deduction under 80C. Interest rates offered by most banks now a day is around 7%, which makes this option good for investment but remember that the return on this FD is taxable meaning on maturity one has to pay tax, which causes a return of less (as per your tax slab).
#5 Home Loan
If you have yet not purchased a house for living and you are planning to purchase please do that and while purchasing please take a Home loan. This will not only reduce your initial investment burden but also provide you an advantage in saving tax.
The home loan principle is accepted for deduction in income tax under 80 C not only that Interest paid on a housing loan up to 2 Lakh per year (Under 24(b)) is exempt from tax.(Excluding Rs.1,00,000/p.a. u/s 80c Saving)
#6 NSC & SCSS
One of the oldest options for tax saving is NSC. Nowadays as a lot of other options are available this option is less popular.
National saving certificate investment will provide you with a return of 7.7 %. Not only principle you can claim tax also as reinvestment under 80C for NSC.
Senior Citizen Savings Scheme is only for individuals with age greater than 60 years. This scheme provides 8.2 % returns. A maximum Investment of 15 lakh can be made under this scheme this scheme has a lock-in period of 5 years.
#7 Mediclaim premium
Medical expenses nowadays are skyrocketing, if you want to make yourself secure from undesirable medical expenses you can purchase mediclaim policy and claim Mediclaim Policy Premium (For self, spouse, children & dependent parents) for tax deduction under 80D.
The maximum limit of this deduction is 25000 Rs/- for self, spouse, and children. An additional 25000 Rs/- can be claimed for dependent parents.
#8 Tuition Fees
Payments made towards tuition fees for children to any school college or university or similar institution can be claimed for deduction under 80 C. (Only for 2 children). This also includes payment made towards coaching fees for various competitive exams.
#9 National Pension System (NPS)
NPS is a government-sponsored retirement savings scheme that offers tax benefits under Section 80CCD. It provides individuals with an opportunity to build a retirement corpus while enjoying tax benefits.
Conclusion
Saving income tax in India is not merely a matter of reducing tax liabilities but also a strategic approach towards financial planning and wealth creation. By investing in tax-saving instruments, utilizing deductions and exemptions, opting for tax-free allowances, planning investments strategically, and staying informed about tax laws and changes, individuals can effectively minimize their tax burden while maximizing their savings and investments.
FAQs
What is the deadline for Investing money for tax savings?
The deadline for making investment tax saving purposes is up to March 31st of the running financial year.
What is the deadline for filing income tax returns in India?
The deadline for filing income tax returns in India is usually July 31st of the assessment year. However, the government may extend this deadline in certain cases.
Can I claim deductions for investments made outside of India?
No, deductions under Section 80C are applicable only for investments made within India.
Are there any tax-saving options available for senior citizens?
Yes, senior citizens can avail of additional tax benefits under various sections of the Income Tax Act, such as Section 80D for medical insurance premiums and Section 80TTB for interest income from deposits.
Is it mandatory to link Aadhaar with PAN for filing income tax returns?
Yes, it is mandatory to link Aadhaar with PAN for filing income tax returns, as per the provisions of the Income Tax Act.
Can I revise my income tax return after filing?
Yes, taxpayers can revise their income tax returns within a specified period if they discover any errors or omissions in the original filing.
