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Table of Content
2. Tax saving instruments and sections therein
3. How to plan your tax saving investments for the year?
4. Tax saving investment plans for young unmarried tax payers and couples with single income
5. What are the income tax saving plans for parents with single income?
6. What are the income tax saving plans for parents with double income?
7. Other tips to save up better for your family
8. Tax Saving Investments for Senior citizens and Retired Persons
Tax-saving is an important part of financial planning. An intelligent tax-planning strategy can serve the dual objective of helping individuals meet their financial goals and save tax in the process.
Sr No. | Tax Saving Investment Options | Tax Benefit Under Section |
1 | Life Insurance |
Section 80C (Premium) Section 10(D) (Death / Maturity) |
2 | Pension Plans |
Section 80CCC(sub-section under Section 80C) |
3 | Health insurance or Mediclaim |
Section 80D |
4 | NPS |
Section 80CCD |
5 | Tax-saving mutual funds |
Section 80C Section 10(D) (Death/Maturity) |
You can save tax by investing in tax saver Fixed Deposits which can fetch you tax deduction under section 80C of the Indian Income Tax Act, 1961. You can claim a deduction of a maximum of Rs.1.5 lakh by investing in tax saver fixed deposits. There is a lock-in period of 5 years for such FDs and the interest earned is taxable. The rate of interest usually ranges from 5.5% - 7.75%.
Public Provident Scheme is a popular investment vehicle for saving tax. A long term savings cum investment product, you need to open a PPF account at the post office or designated branches of public and private sector banks to start with. Contributions to the PPF account earn a guaranteed rate of interest. You can claim deductions under Section 80C up to Rs 1.5 lakh in a financial year on these deposits.
ULIPs are long term investment products that allow you to choose equity funds, debt funds or both. ULIPs give you the flexibility to switch between funds in sync with your financial goals. By investing in ULIPs, you can save taxes under sections 80C and 10(10D) of the Income Tax Act, 1961.
National Savings Certificates are a savings bond scheme which encourages primarily small to mid-income investors to invest while saving on income tax under Section 80C. If you have a Savings account with a Bank or a Post Office, you can buy NSC certificates in e-mode, provided you have access to internet banking. NSCs can be bought by an investor for self or on behalf of minor or with another adult as a joint account.
Senior Citizen Savings Scheme (SCSS) is a government-sponsored savings instrument for individuals above the age of 60 which gives a steady and secure source of income for their post-retirement phase and offers comparatively substantial returns.
The principal amount deposited in an SCSS account is eligible for tax deductions under Section 80C of the Income Tax Act, 1961, up to the limit of Rs. 1.5 Lakh. However, this exemption is applicable only under the existing tax regime. It is not allowed if an individual chooses to file tax returns under the new system introduced in Union Budget 2020.
The interest received is, however, subject to taxation as per the applicable slab of the concerned taxpayer.
Life insurance plays an important role inthe individual's financial portfolio offeringsecurity to the individual's family in case of an eventuality. This makes it the breadwinner's primary responsibilityto take life insurance at the earliest for the family's security.
Life insurance, be it traditional (endowment) or market-linked (ULIP), offers tax benefits to policyholders on the premiums paid.
There are various life insurance plans like:
Regardless of its nature, life insurance plans offer tax benefits to policyholders.
Premiumspaid towards life insurance are covered under Section 80C of the Income Tax Act up to a maximum of Rs 1.5 lakhs. Proceeds on death / maturity are tax-free under Section 10(D).If policyis surrendered/terminated withinfive years, deductions claimed are added to income and taxed accordingly
Term plans
Endowment plans
ULIPs or unit-linked plans
Pension Plans is another form of life insurance. They serve a different end-objective from other insurance plans like term plans and endowment plans - which are called protection plans. While protection plans are geared to financially secure the individual's family on his death, pension plans aim at providing for the individual and his family if he lives on.
Contributions towards pensionare covered under Section 80CCC(sub-section under Section 80C) of the Income Tax Act. The aggregate limit of deduction under all the sub-sections of Section 80C cannot exceed Rs 1.5 lakhs.
On maturity 1/3rd of the accumulated pension amount is tax free with the balance 2/3rd treated as income and taxed at the marginal tax rate. The amount is tax free upon death of beneficiary.
Health insurance or Mediclaim as it is more popularly known, covers expenses incurred from an accident/hospitalization. Mediclaim also covers pre and post-hospitalization expenses, subject to the sum assured
Health insurance offers tax benefits under Section 80D. Insurance premium upto Rs 20,000 for senior citizens and Rs 15,000 for others is eligible for tax benefit. If the policyholder pays Rs 15,000 as premium on his own policy and Rs 20,000 for his parent, a senior citizen, he can claim tax benefit of Rs 35,000 (Rs 15,000+20,000). Maturity value is tax free for sum received under critical illness insurance policies policies
The NPS or the New Pension Scheme is regulated by the Pension Funds Regulatory and Development Authority - PFRDA. Any citizen of India over the 18 - 60 years age bracket can participate in it. It is extremely cost effective since fund management charges are low. The fund managers manage the money in three separate accounts having distinct asset profiles viz. Equity (E), Corporate bonds (C) and G Government securities (G). Investors can choose to manage their portfolio actively (active choice) or passively (auto choice).
Contributions made to the NPS are covered under Section 80CCD of the Income Tax Act. The aggregate limit of deduction under this section along with Sections 80C, 80CCC cannot exceed Rs 1.5 lakhs.
Given the range of options, NPS is particularly useful for individuals, with varying risk appetites, looking to set aside money towards retirement.
Investments in tax-saving mutual funds, also known as equity-linked savings scheme (ELSS), qualify for tax benefits. Tax-saving mutual funds invest in stockmarkets, among other assets, and are more suited for investors with medium to high risk appetite. Investments are locked in for three years.
Investments towards tax-saving mutual funds are covered under Section 80C of the Income Tax Act up to a maximum of Rs 1.5 lakhs. Proceeds on death / maturity are tax-free under Section 10(D).
April 1 is the beginning of the tax-saving season for salaried and non-salaried taxpayers. The purpose of a sound tax saving investment should not only be to provide tax exemption but also to earn tax-free income.
Rather than waiting for the end of the financial year and opting for ad-hoc tax-saving instruments, it would be a smarter approach to begin investments in the early quarters of the financial year so that taxpayers can get time to plan their investments and avail maximum returns. Factors like safety of the fund, liquidity and size of returns are the things to consider while zeroing on the right tax-saving investment plan.
Most tax-saving investment plans fall under Section 80C of the Income Tax Act, which makes the taxpayer eligible for exemption of up to a maximum limit of Rs 1,50,000. Investors may choose from options like ELSS (Equity Linked Saving Scheme), Public Provident Fund, Life Insurance, National Savings Scheme, Fixed Deposits, and Bonds.
For individuals who are in their late 20s or early 30s, unmarried or married with only one person contributing towards household expenses, the most-apt tax saving options are:
If yours is a single-income household with a child, you need to be prudent in your financial plans to save tax as well as fulfill goals of your family and children.
To add to it, children's tuition fees can be claimed under 80C. Any interest on education loan for funding your child's higher education is completely deductible under Section 80E. Up to Rs 1 lakh more can be saved under Section 80D.
Pension funds shouldn't be ignored and at least 10% of annual income must be invested in National Pension Scheme and the likes.
A married couple with double income can claim more than Rs 8.5 lakh in deductions with investments and insurance. The options to consider include:
Post retirement, there needs to be a steady flow of funds to manage your regular expenses as there is no monthly salary flowing in your account. So, what are the options for the elderly?
Whether you need to pay taxes depend entirely on the type of investment you are planning for the financial year. Below are few of the investment types you will be levied taxes on:
a. Capital gains: You will be taxed when you sell some of your investments at a profit.
b. Tax on interest: To save on this tax you need to careful while investing in funds/products. Some schemes are tax-free but there are times when some interest earned on some products are taxable.
c. Dividends and other income types: Individuals need to pay interest on dividends in case of profits from selling the investments, rental and other forms of income they receive.
Individuals can buy as many tax-free investment instruments as they need as there is no limit to it. However, investors must not forget that there is a limit of deduction under which one can claim the tax benefits. To know these limits, you need to refer to different section of the Income Tax Act.
The maximum limit of investment under Section 80C of the Income Tax Act, 1961 has been capped at Rs 1,50,000 from your total taxable income.
Individuals can reduce their taxes legally by making investments in the government approved tax-free investment instruments.
Individuals are always a look out for ways to save on paying tax. Below are the few ways to reduce your taxable income in India:
a. Claim the expenses you have made to save income tax
b. Invest in tax-saving instruments listed under Section 80C of Income Tax Act
c. Avail tax deduction on your housing loan
d. Money received from life insurance policy upon maturity or while receiving the claim amount is exempt from tax. The general rule is that premium should not exceed 20% of the sum insured for policies issued before 1 April, 2012. For policies post 1 April, 2012, the premium should not exceed 15%
e. Keep a check on your long-term capital gains as 10% tax is applicable if it exceeds more than Rs 1 lakh
f. A certain portion of money paid towards health insurance premium is not taxable under Section 80D. Additionally, premium paid for purchasing health insurance for the elderly can let you save more tax.
Although a receipt is preferred for every expense you make and want to claim on your tax return, there are few expenses you might be able to claim if the receipt is lost.
a. Fuel or petrol expenses if you can explain the number of kilometres you are claiming
b. Computer items if you can submit credit card statement and a note against it
c. Stationery items if you can submit credit card statement and a note against it
d. Membership fees if you have the documentation to prove it.
The new tax system, introduced last year and also part of Budget 2023-2024, has been made optional and continues to co-exist with the old/existing regime. There are various tax exemptions and deductions available to a taxpayer under the Income Tax Act. The commonly availed tax-exemptions and deductions include tax exemption on house rent allowance, leave travel allowance, deductions under Section 80C, standard deduction, Section 80D deductions, etc.
Below are five tips to minimize your tax outgoing and maximising tax refund:
To learn more about the income tax slab FY 2023-24, click here.
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#Tax benefits & exemptions are subject to conditions of the Income Tax Act, 1961 and its provisions.
#Tax Laws are subject to change from time to time.
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