Taxes are an important part of how a government earns its revenue. They are also mandatory to be paid if you earn more than the tax-free income slab. While taxes can take a certain portion of your income, you can reduce your tax liability with tax planning.
In India, investors enjoy various options that help them retain their hard-earned money and reduce taxable income. In this comprehensive article, we have discussed eight effective tax-saving options for everyone to optimize their savings through tax.
Planning Investments Strategically to Save Tax
Let’s take a look at tax-saving options to legally save on taxes and contribute to your wealth-creation journey.
Section 80C Investments
You can claim a deduction of up to INR 1.5 lakh per financial year through the following investments under section 80C.
- Public Provident Fund (PPF): With a maturity period of 15 years, PPF is a long-term investment offering tax-free returns.
- Employee Provident Fund (EPF): Provident fund includes contributions made by employees towards EPF, which are eligible for tax deductions.
- National Savings Certificate (NSC): This is a government savings bond with a maturity period of 5 years. Currently, NSC investments are yielding a 7.7% interest return per annum.
- Life Insurance Premiums: You can also claim deductions on the premiums paid for life insurance policies for yourself, your children, or your spouse.
- Equity-Linked Savings Scheme (ELSS): This is a type of tax-saving mutual fund with a lock-in period of 3 years, offering the potential for higher returns. Investors can explore top ELSS mutual funds on popular platforms such as Dhan.
Invest in the best ELSS Mutual Funds on Dhan
Health Insurance Premiums (Section 80D)
You can claim deductions for premiums paid for health insurance for your family, your parents, or yourself under Section 80D. Check out the maximum deduction limits under this section below.
- Self, Spouse, and Children: Up to INR 25,000 per year. (INR 50,000 for senior citizens)
- Parents (Below 60 years): Up to INR 25,000 per year.
- Parents (Above 60 years): Up to INR 50,000 per year.
Besides, there’s a provision for an extra deduction of INR 5,000 for preventive health check-ups.
Home Loan Interest (Section 24)
If you have taken a home loan, the interests are eligible for deduction under Section 24(b). Under this, homeowners can save taxes on INR 2 lakhs paid as interest every year if the property is self-occupied.
National Pension System (NPS) (Section 80CCD)
The NPS (National Pension System) makes every individual eligible for an additional tax deduction of up to INR 50,000, apart from the INR 1.5 lakhs that they can save under Section 80C. Contributing to the NPS helps in building a secure retirement corpus while bringing in tax benefits. This makes it an attractive option for long-term savings.
Education Loan Interest (Section 80E)
Those going for higher studies often take education loans. Under Section 80E, the interest paid on education loans for higher studies is fully deductible from your taxable income.
However, this benefit can be availed for a maximum of 8 years or until the interest is fully repaid. This deduction is applicable to loans taken for the higher education of your spouse, children, or yourself.
Savings Account Interest (Section 80TTA)
Most of you must have a savings account in your bank, post office, or corporate society. Do you know that the interest earned on these accounts is eligible for deductions under Section 80TTA? Each financial year, you are eligible for a maximum deduction of INR 10,000.
Donations to Charitable Organizations (Section 80G)
Indian citizens can also save substantial amounts of taxes by donating to specified charitable organizations. These relief funds are eligible for deduction under Section 80G.
However, you must make sure that the organization is approved by the government. While donating, get a receipt to claim the deduction later on.
House Rent Allowance (HRA)
For salaried employees in India, House Rent Allowance (HRA) is a significant tax-saving option. Tax authorities consider the least of the following for deduction.
- Actual HRA received.
- 50% of the basic salary if living in a metro city (40% for non-metro cities).
You need to provide rent receipts or a rent agreement to claim this deduction.
Saving tax is a priority for everyone, regardless of the tax bracket you come under. With these strategic investments, you can make the most of the opportunities to save tax. When you plan your long-term wealth accumulation strategy, always consider your current and future financial conditions.
Conclusion
In this article, we have discussed eight tax-saving options that can significantly reduce your tax liability. With these legal provisions to save tax, you can build wealth for the long term.
