How to save tax in India
5paisa Research Team
Last Updated: 26 Apr, 2024 11:24 AM IST
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Content
- 10 Best Ways to Save Tax in India
- Unit Linked Insurance Plan (ULIP)
- Sukanya Samriddhi Yojana (SSY)
- Senior Citizen Saving Scheme (SCSS)
- Public Provident Fund (PPF)
- National Savings Certificate
- ELSS Funds
- 5Year Bank Fixed Deposit
- Life insurance policies
- Home Loan Repayment
- List of Tax Saving Options for Different Sections
- How to plan your tax saving investments for the year?
- Conclusion
Everybody wants to find the best way to save on taxes since taxes are crucial for both our personal finances and the growth of our country. In India, taxes are imposed on what you earn, what you own and your property. When you make money you pay income tax and if you own a business you pay corporate taxes to the government. Wealth tax is another one based on the total value of your assets like property and investments.
The money collected from these taxes is crucial for the country to run smoothly. It helps the government invest in things like infrastructure, education and healthcare which are essential for our growth.
Now, when it comes to paying taxes everyone wants to pay as little as possible. So, people often search for how to save tax in India, especially before the tax filing deadline. There are legal methods provided by the government to reduce your tax burden. In this article we will cover them all.
10 Best Ways to Save Tax in India
|
Investment |
1 | Unit Linked Insurance Plan (ULIP) |
2 | Sukanya Samriddhi Yojana (SSY) |
3 | Senior Citizen Saving Scheme (SCSS) |
4 | Public Provident Fund (PPF) |
5 | National Savings Certificate |
6 | National Pension System (NPS) |
7 | ELSS Funds |
8 | 5-Year Bank Fixed Deposit |
9 | Life insurance policies |
10 | Home Loan Repayment |
Unit Linked Insurance Plan (ULIP)
ULIPs are like two in one plans that offer both life insurance coverage and investment opportunities in mutual funds. When you buy a ULIP, you make payments called premiums to a life insurance company. These premiums are divided one part goes into your life insurance coverage and the rest is invested in mutual funds like stocks or bonds. Professionals manage these investments and you can switch between different types of funds. ULIPs have a lock in period of five years but since they're meant for long term goals, it's better to hold them for 15 years or more.
Sukanya Samriddhi Yojana (SSY)
Parents with a daughter under 10 can use the Sukanya Samriddhi Yojana scheme. You can invest up to Rs. 1.5 lakhs per year and get a tax deduction under Section 80C. This account lasts for 21 years or until your daughter marries after turning 18. The current interest rate is 8.2% and the interest you earn is tax free.
Senior Citizen Saving Scheme (SCSS)
SCSS stands for Senior Citizen Savings Scheme, a government backed savings plan for people over 60. It was introduced in 2004 to offer retirees a reliable income source. SCSS provides good returns with low risk and you can apply for it at post offices or banks. It's a tax saving option with a 5 year tenure offering an 8.2% interest rate which is taxable and tax deductions up to Rs 1.5 lakh.
Public Provident Fund (PPF)
Public Provident Fund is a long term savings plan offered by the government lasting for 15 years. It's a popular tax saving option available at banks and post offices. PPF interest rates change every few months currently, it's at 7.1%. The interest earned on PPF is tax free. You can start with just Rs. 500 and invest up to Rs. 1.5 lakh per year.
National Savings Certificate
National Savings Certificate is a tax saving scheme offering a fixed interest rate of 7.7% annually for 5 years. The interest earned on NSC can be used for tax saving purposes with up to Rs 1.5 lakh eligible for deduction under section 80C.
ELSS Funds
ELSS is a special type of mutual fund where your money is locked in for 3 years. It's unique because it's the only mutual fund in India that qualifies for tax deductions under Section 80C of the Income Tax Act.
ELSS usually offers higher returns compared to other tax saving options because it invests mainly in the stock market. You can invest in ELSS either in one go or regularly through SIP. Remember, you can't take out your money before the 3 year lock in period ends.
But keep in mind since ELSS invests in stocks there's a higher risk involved. However, if you stick with it over time, it can be a rewarding choice for your long-term financial goals.
5Year Bank Fixed Deposit
Tax-saving Fixed Deposits are another great way to save on taxes. For instance with a 5year tax saver FD, you can get a tax deduction of up to Rs 1.5 lakh. These FDs offer a fixed interest rate typically around 7-8%. However, the interest earned is taxable based on your tax bracket.
Life insurance policies
If you bought a life insurance policy after April 1, 2012 and the premium is less than 10% of the sum assured, the maturity amount or bonus you receive is tax free under Section 10. For policies bought before this date, if the premium is less than 20% of the sum assured the maturity amount is tax free. If the policy covers someone with a disability or certain diseases listed under Sections 80U or 80DDB and was issued after April 1, 2013, the maturity amount is tax free as long as the premium is below 15% of the sum assured.
Home Loan Repayment
If you've taken a home loan you can get a tax deduction under Section 80C for the part of your monthly payment that goes toward paying off the loan's principal amount. However, the interest you pay on the loan doesn't qualify for tax deductions.
List of Tax Saving Options for Different Sections
Here's a breakdown of different sections along with corresponding investment options to guide you on how to save taxes under each section.
|
Investments | Exemption Limit |
80C | Insurance, PPF, PF, NPS, ELSS, etc. | ₹150,000 |
80CCD | NPS investments | ₹50,000 |
80D | Medical insurance for self or parents | ₹25,000 (self), ₹50,000 (parents) |
80EE | Interest on Home loan | ₹50,000 |
80EEA | Interest on Home loan | ₹1,50,000 |
80EEB | Interest on electric vehicle loan | ₹1,50,000 |
80E | Interest on education loan | Full amount |
24 | Interest paid on the home loan | ₹200,000 |
10(13A) | House Rent Allowance (HRA) | As per the salary structure |
How to plan your tax saving investments for the year?
Start thinking about your tax saving investments right from the start of the financial year. Many people wait until the last few months which can lead to rushed decisions. Planning early allows your investments to grow over time helping you achieve your long-term goals.
Here's what you can do:
1. Look at your existing tax saving expenses like insurance premiums, tuition fees, EPF contributions and home loan repayments.
2. Compare the new and old tax regimes to see which benefits you more.
3. Once you know how much you've already saved on taxes, subtract that from the maximum limit of ₹1.5 lakh to figure out how much more you need to invest.
4. Choose investments that suit your goals and risk tolerance. Options like ELSS funds, PPF, NPS and fixed deposits are popular choices.
5. If the old tax regime works better for you based on your deductions then go ahead with your investments. Otherwise, consider sticking with the new regime.
6. Start investing early in the year so you can spread out your investments. This way, you won't feel overwhelmed at the end of the year and you'll have time to make thoughtful decisions about where to put your money.
Conclusion
The government offers various tax benefits to residents, non-residents and organizations. Instead of complaining, it's wise to make the most of these options. Being informed about your rights can help you save tax in India.
Tax is something we all have to deal with here. One best way to save on taxes is by investing in mutual funds, stocks and bonds. Mortgage interest and capital gains also fall under tax saving strategies.
More About Tax
- Section 115BAA-Overview
- Section 16
- Section 194P
- Section 197
- Section 10
- Form 10
- Section 194K
- Section 195
- Section 194S
- Section 194R
- Section 194Q
- Section 80M
- Section 80JJAA
- Section 80GGB
- Section 44AD
- Form 12C
- Form 10-IC
- Form 10BE
- Form 10BD
- Form 10A
- Form 10B
- All About Income Tax Clearance Certificate
- Section 206C
- Section 206AA
- Section 194O
- Section 194DA
- Section 194B
- Section 194A
- Section 80DD
- Municipal Bonds
- Form 20A
- Form 10BB
- Section 80QQB
- Section 80P
- Section 80IA
- Section 80EEB
- Section 44AE
- GSTR 5A
- GSTR-5
- GSTR 11
- GST ITC 04 Form
- Form CMP-08
- GSTR 10
- GSTR 9A
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- GSTR 7
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- GSTR 3B
- GSTR 1
- Section 80TTB
- Section 80E
- Section 80D Of Income Tax Act
- Form 27EQ
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- Form 10IE
- Section 10(10D)
- Form 3CEB
- Section 44AB
- Form 3CA
- ITR 4
- ITR 3
- Form 12BB
- Form 3CB
- Form 27A
- Section 194M
- Form 27Q
- Form 16B
- Form 16A
- Section 194LA
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- Section 1941B
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- Section 194D
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Disclaimer: Investment in securities market are subject to market risks, read all the related documents carefully before investing. For detailed disclaimer please Click here.
Frequently Asked Questions
To save on taxes in India, utilize deductions and exemptions like Section 80C for investments, 80D for medical insurance and 24 for home loan interest. Choose tax efficient investment options and consider tax saving schemes. Additionally, consult with a financial advisor for personalized strategies aligned with your financial goals.
Investing in a PPF falls under the exempt exempt (EEE) category. This means that the money you put into PPF, the interest you earn on it and the final amount you receive when the investment matures are all completely tax-free.
New Tax Regime -
Up to Rs.2.5 lakh - Exempt
Over Rs.2.5 lakh to Rs.3 lakh - Exempt
Over Rs.3 lakh to Rs. 5 lakh - 5%
Over Rs.5 lakh to Rs.6 lakh - 5%
Over Rs.6 lakh to Rs. 9 lakh - 10%
Over Rs.9 lakh to Rs.10 lakh - 15%
Over Rs.10 lakh to Rs.12 lakh - 15%
Over Rs.12 lakh to Rs.15 lakh - 20%
Above Rs.15 lakh - 30%
Old Tax Regime
Up to Rs.2.5 lakh - Exempt
Over Rs.2.5 lakh to Rs.3 lakh - 5%
Over Rs.3 lakh to Rs. 5 lakh - 5%
Over Rs.5 lakh to Rs.6 lakh - 20%
Over Rs.6 lakh to Rs. 9 lakh - 20%
Over Rs.9 lakh to Rs.10 lakh - 20%
Over Rs.10 lakh to Rs.12 lakh - 20%
Over Rs.12 lakh to Rs.15 lakh - 20%
Above Rs.15 lakh - 30%