The filing season is a period of frenzy for every salaried person as they collate information to calculate taxes they have to shell out. While doing so, there’s one common question running across their minds - What are my tax* saving options?
Apart from understanding components in your salary income, your tax slab, and computation of taxable income, you need to know how to manage funds and save tax on salary in India. After all, you have worked hard to earn all the money, and you want to make the best of it for yourself and your family!
To help you out, there is section 80C under the Income Tax laws that list a set of tax-saving investments that can help you avail of tax exemptions and even tax-free income. You can claim tax exemptions with the proper planning of up to a maximum limit of Rs. 1.5 Lakh with these investments, which include fixed deposits, income insurance, provident fund, and more.
If you are seeking ways to save taxes under the Income Tax Act, then listed below are some of the top ten tax saving options for you.
1. Employee Provident Fund
Employee Provident Fund is one of the most popular ways of tax saving for salaried people. Also called the EPF, it is a retirement fund that came into existence under the Employees’ Provident Fund and Miscellaneous Act, 1952. This investment is currently managed by the Central Board of Trustees.
Under this investment scheme, you and your employer can contribute a maximum of 12% of your salary to this fund. There’s a fixed rate of interest that you receive on the contributed amount.
Now, both accumulated funds as well as the interest earned, are tax-free!
2. Public Provident Fund
A salaried individual’s income plan is incomplete without investment in a Public Provident Fund or PPF. A government-enabled savings scheme, you can open a PPF with as low as Rs. 500. You can make an investment a maximum of Rs. 1.5 Lakh.
With PPF carrying the EEE or Exempt-Exempt-Exempt status. This means that the amount invested toward the fund, the interest earned, and the maturity sum are all exempted from tax. Thus, it makes for an excellent tax saving and investment avenue for you!
3. Equity Linked Savings Scheme
ELSS is a mutual fund scheme that, as the name suggests, is focused on investing in equity. Any investment made in an ELSS is subject to a lock-in period of 3 years. Plus, equity stocks are known for their high-risk, high-return nature, ELSS makes for a great option for wealth creation.
It is also an ideal investment tool for tax saving for salaried. Why? Although returns above Rs. 1 Lakh are now taxable under the long term capital gains tax, the investment made toward the plan is deductible under section 80C.
4. Life Insurance
One of the best tax-saving investments, life insurance is a great way to save money and secure it to provide for contingencies. You have a range of insurance policies, from term insurance that gives you a death benefit to savings insurance, which is a savings plan offering guaranteed1 returns to accomplish your goals like tax saving.
The premiums you pay is tax-deductible under Section 80C of the Act. Also, the sum assured received on death and the survival benefit enjoy applicable tax benefits under Section 10(10D) subject to fulfillment of conditions as per prevailing tax laws.
Short for Unit Linked Insurance Plans, ULIPs provide the dual benefit of insurance and investment. With the fund you pay as premiums, you not only provide a financial cover to your family but also can invest funds in a choice of securities to gain returns with smart planning.
ULIPs fall under the EEE category, which means that you can save taxes* as premiums paid, the returns gained, with zero deductions and the sum assured on maturity all enjoy tax* benefits, subject to specific conditions and recent tax* guidelines.
6. Rental Accommodation
Living in a rented property? Then you are eligible for tax saving as per rules specified in the Income Tax Act.
Typically, your salary includes House Rent Allowance or HRA, which is not completely taxable. As a part of HRA tax exemption under Section 10(13A), subject to certain terms and conditions, you can benefit from some tax deductions as a salaried individual.
7. National Pension Scheme
Meant for people with a low-risk appetite who want to plan for retirement is the National Pension Scheme or NPS. Falling directly under the purview of the central government, it is not only a safe investment option but also an excellent choice of tax saving plan for salaried.
You can claim tax benefits on the contribution under section 80C of the IT Act. Furthermore, you can get additional deductions of up to Rs. 50,000 u/s 80CCD(1b).
8. Health Insurance
The sedentary lifestyle, long work hours, and unhealthy eating habits combined with other environmental factors have led to a rise in chronic health conditions. In addition to this, the increasing costs of healthcare have made health insurance a crucial investment.
It saves you and your family from health issues that can cause a hole in your pocket and also provides tax benefits. You can claim deductions for premiums paid under Section 80D. Health insurance is one of the tax-saving investments that are beneficial in various ways.
Given to an employee on resignation, superannuation, retirement, dismemberment, or death, it is tax-exempt under section 10(10). The upper limit for exemption is Rs. 20,00,000. Note that you must have completed a minimum of five years of service to be eligible for the receipt of the amount.
10. Tax Saving Fixed Deposit
One of the most popular savings options, fixed deposits, are a great way to let your money work for you and also save some amount on taxes. They come with a 5-year lock-in period and provide guaranteed1 returns, making it an ideal option if you are looking for a safe investment. Plus, you can claim tax deductions on your tax-saving FD under Section 80C.
Leverage these tax-saving investments to reduce your tax burden with proper planning.
Tata AIA insurance provides a range of insurance and investment options that can help you create wealth and save on taxes! For more information, get in touch with us today, and our advisors can help you create a financial portfolio that suits your needs!