How to save taxes, or better, how to organize your investments, is a question that we all have. While tax preparation is important, tax-saving strategies are also necessary. With the finest tax saving plan in India, you may save money while also earning money.
The beginning of the fiscal year is the best time to prepare for tax-saving investments. This ensures that you do not pay additional taxes and save taxes in India, as well as year-long rewards on tax-saving investments.
In India, we all want to save taxes, but only a few of us succeed. The answer might be a lack of understanding or difficulties in incorporating the best-suited option into your investing strategy.
We have covered each of the greatest tax saving plan alternatives in India in this post to help you compare and make an informed investment decision.
Unit Linked Insurance Plan (ULIP)
One of the most prominent investment plans in India is the ULIP Life Insurance Plan. It assures that one’s family is financially secure in the event of death. The taxpayer can take advantage of the income tax benefit by acquiring a life insurance policy.
The premium paid toward the acquisition of a life insurance policy is deductible up to Rs. 1.5 lakh under section 80C of the Income Tax Act of 1961. Furthermore, income from the policy’s maturity is tax-free under Section 10(10D).
If the premium is less than 10% of the total insured, the income is tax-free. If the money is transferred to the nominee of the person covered, it is tax-free in the nominee’s hands.
The taxpayer can claim a 20% tax deduction on the premium paid under Section 80C of the Income Tax Act of 1961. The following requirements must also be met:
- On or before March 31, 2012, the taxpayer acquires a life insurance policy.
- The insurance is either in his or their spouse’s or child’s name.
If the life insurance coverage is obtained after April 1, 2012, the premium paid is tax-deductible up to 10% of the sum assured.
Public Provident Fund (PPF)
The Public Provident Fund has traditionally been one of the most popular tax saving plan among taxpayers. One of the primary reasons for its popularity is that PPFs are tax-exempt–exempt–exempt. PPF accounts can be opened at a bank or a post office.
Taxpayers can claim a deduction for the amount invested during the fiscal year under Section 80C of the Income Tax Act. The highest amount that may be deducted is Rs. 1.5 lakhs. Because PPF comes within the exempt category, the interest and maturity amounts are tax-free.
Sukanya Samridhi Yojana (SSY)
Sukanya Samriddhi Yojana has grown to be one of the most prominent tax-saving plan. The government of India introduced it in 2015 as part of the Beti Bachao Beti Padhao initiative. It had a significant influence on the general people.
The programme allows for a fixed income investment in which the taxpayer can make monthly contributions while earning interest. Investing in the Sukanya Samriddhi Yojana is also deductible under Section 80C of the Income Tax Act.
The rate of interest on the programme is determined quarterly by the government of India and is payable at maturity. The programme has a 21-year lock-in term and will mature when that time expires.
A minimum deposit of Rs. 250 is required every year for 15 years. Failure to pay the required amount in a year will result in the account being disconnected. To reactivate the account, you must pay Rs. 50 penalty in addition to the original Rs. 250 deposit.
National Savings Certificate
A national savings certificate, a government of India programme, is a fixed income investment tax saving scheme that encourages small and middle-income individuals to invest and receive substantial returns. It is regarded as a low-risk investment that is just as safe as the Provident Fund. Investors can invest based on their income and investment habits.
Investment in NSC qualifies for a deduction of up to Rs. 1.50 lakh under section 80C of the Income Tax Act. Apart from tax benefits, it also provides the investor with total capital protection and guaranteed interest.
ELSS Mutual Funds
Equities Linked Savings Schemes are mutual funds that invest a significant portion of their assets in equity. Furthermore, the fund has a three-year obligatory lock-in period, which is the shortest of any investment product.
Investment in ELSS funds is deductible under section 80C of the Income Tax Act, up to a maximum of Rs. 1.5 lakh. The deduction is available for both lump sum investments and investments made under a systematic investment plan (SIP). Since ELSS funds engage heavily inequities, there is always some risk involved.
ELSS funds provide both capital appreciation and tax-saving plans. As a result, it is one of the most popular tax-saving methods among investors.
In general, taxpayers who wish to claim Section 80C tax deductions of up to Rs 1.5 lakh and are ready to assume some risk can consider investing in ELSS.
These mutual funds are equity-oriented, with a minimum of 60% of their portfolio invested in equities and equity-linked assets. As a result, it is critical to remain invested in the funds for an extended length of time to reap the benefits of the returns.
Wrapping It Up
When considering how to save tax in India, keep in mind that your objective should be more than just tax saving schemes. The objective must be to invest in the best-suited investment option while also saving money on taxes.
Due to a lack of financial preparation, many people find up paying a considerable amount of income tax at the end of each fiscal year. The Income Tax Act (ITA) provides for several deductions that can be claimed while completing your taxes. You may save a lot of money on taxes if you make the appropriate investments.
