Tax Savings Strategies: How can you save tax through your investments

As an earning individual, paying taxes is inevitable. The government uses this amount to pay for the country’s development in various aspects such as healthcare, transportation, defense, etc. However, there is no denying that paying tax can lower your in-hand income by a certain margin.

Fortunately, there is a way to save tax, increase your savings and promote your financial health through tax-saving strategies.

Tax Saving Strategies in India: Where to invest?

The government allows tax deductions in specific benefitting policies or schemes. A taxpayer can realize tax deduction up to Rs 1,50,000 under various sections of the Income Tax Act, 1961.

  1. Tax Savings Investments under Section 80C (up to Rs 1,50,000)

    You can invest in the following options under Section 80C to enjoy tax savings of up to Rs 1,50,000:

    • Public Provident Fund: It is a savings scheme established by the Indian government with a maturity period of 15 years and a current interest rate of 7.1%.

    • Tax Saving FDs: Similar to regular FDs, the tax-saving FDs come with a lock-in period of 5 years, with an interest rate ranging from 5.5% to 7.5%.

    • Employee Provident Fund: It is a retirement benefits scheme directed towards salaried employees. The scheme demands a minimum contribution of 12% of Basic Pay + D.A and offers a current interest rate of 8.50%.

    • National Pension Scheme: Established by the Indian government for offering post-retirement income, the scheme offers returns on investment between 12%-14%.

    • Unit Linked Insurance Plans: ULIPs direct a part of the premium amount towards providing insurance and the remaining towards investment tools such as equities. With no limit on maximum contribution, they offer returns between 12%-14% and have a lock-in period of 5 years.

    • ELSS Funds: Equity Linked Savings Scheme provides capital appreciation along with equity investments. By investing 4/5th of the assets in equity, they offer returns between 15%-18% with a lock-in period of 3 years.

    • Sukanya Samriddhi Yojana: The scheme is aimed at the betterment of girl child until she attains the age of 18. The scheme comes with a current interest rate of 7.6%.

    Tax Saving Payments under section 80C

    • Life Insurance Premium: If the annual paid premium towards your life insurance policy is less than 10% of the sum assured, you can claim tax deductions under the section.

    • Repayment of home loan: Repayment of the principal loan taken to buy or construct a residential property along with transfer expenses, registration fee, and stamp duty is eligible for deduction.

    • Children’s tuition fee: The education fee paid for a maximum of two children to any institution in the country is eligible for a tax deduction.

  2. Tax Saving Investments/Payments under section 80D

    • Health Insurance: Tax deduction up to Rs 50,000 (Rs 1,00,000 for senior citizens) for the annual premium paid towards a health insurance policy.

  3. Tax Saving Investments/Payments under section 80GG

    • House Rent Allowance: If you are a salaried employee, you can claim a tax deduction up to Rs 60,000 under the section if you are getting a house rent allowance for living in a rented house.

Apart from these common sections, numerous other sections under the Income Tax Act allow you to claim tax deductions and make your tax-saving strategies successful. It is always advisable that you consult a financial expert to ensure that you create the best tax-saving strategies in India.

How can we save tax on different sections?

Most sections that allow for a tax deduction demand an investment or payment on your part. Once you have covered all of your expenses, you can look to invest your savings in any of these investment tools to be eligible for claim tax deductions. The tax-saving strategies should fully depend on your savings and how they can complement your financial goals. As most of these tools offer good returns for capital appreciation, investing will help you save tax, increase your savings along with creating long-term wealth.

Can we create our tax strategies?

Although you should consult with a financial advisor to help you in creating the best tax saving strategies, you can analyze your finances and make the right decision by:

  • Review your finances to identify current tax-saving expenses such as insurance, tuition fee, etc. to understand your investment amount and claim the highest eligible tax deduction.

  • Analyze your current financial situation to ensure that the investments you make are sound and budget-friendly.

  • Evaluate your financial goals, needs, and risk profile to compare various investment tools and choose the ideal ones.

If you are looking for tax savings strategies, the best thing to do is review your finances and consider investing in the abovementioned investment tools. They will help you identify an ideal way to increase your savings and allow you to plan your future to ensure financial stability. When you can claim tax deduction under these sections, why not save as much tax as possible?

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