If you are a salaried person whose income is between 5 lakh to 15 Lakh annually, you must be aware of the term tax liability. As the famous saying goes “ A penny saved is a penny earned”. Tax planning is the best way through which you can not only save tax but also increase your salaried income in an effective way.
Once you ascertain the amount of tax you have to pay, you must plan to save tax by availing of tax deduction under the provision act of Income Tax Act.
To achieve maximum tax benefits, you can choose to invest in tax saving options under several provisions of the Income Tax Act.
It could be anything from making voluntary donations, taking a home loan or asking your employer to restructure your salary.
The perfect time to plan for tax saving is earlier as much as you can, mainly at the beginning of the FY to prevent any stress or hassle while filing your INR.
Saving Tax Under Section 80C, 80D and 80E
Making an investment of Rs 1.5 Lakh under section 80C helps you to minimize your taxable income in the best possible way. Additional deduction of Rs 50,000 can be claimed by investing in NPS under 80CCD.
On buying Medical Insurance, the maximum deduction allowed is Rs 100000 out of which Rs 50000 is for self and family and Rs 50000 for parents if they come under the senior citizen category under Section 80C.
Claim deduction up to Rs 50,000 on Home Loan Interest under section 80EE.
Understanding Income Tax Slab Rates
The income tax department deduces your tax liability based on your annual income. As per the IT act, individuals who have an income between 2.5 Lakh and 5 Lakh comes under the tax slab of 5% for an annual income. The age limit is 60 years.
Similarly, there are different income tax slabs for individuals having different incomes. For instance, a tax slab of 20% is applicable for an annual income that comes between Rs 5 Lakh and Rs 10 Lakh.
While the tax slab of 30% is applicable for the individuals whose annual earnings come above 10 Lakh. It may be noted that an additional cess is also payable for health (4%) and education (4%).
However, the government provides a full tax rebate for individuals who have an income below 5 Lakh.
Investment Options Under Section 80 C
The foremost way to save tax is only through investing your money into several tax saving instruments. Here, you can avail of tax up to 1.5 Lakh under section 80C of the Income Tax Act.
- Public Provident Fund (PPF)
These are government-backed savings schemes that come with a lock-in period of 15 years. The interest rate of PPC changes every quarter. However, the current interest rate of PPF is 8%.
- Employee Provident Fund
Employee provident fund is the perfect scheme for salaried employees. Here, 12% of the basic salary and dearness allowance can be deducted by the government. This fund is then invested in numerous government-backed securities.
- National Savings Certificate (NSC)
NSC has a minimum lock-in period of 5 years with a fixed return of 8%. The interest on NSC is often counted as Rs 1.5 lakh under 80C and is tax-deductible if no investment options are using up the limit.
- National Pension Scheme (NPS)
A national pension scheme is backed by the government, providing retirement benefits to employees. It provides for two accounts: Tier 1 and Tier 2.
- Equity Linked Saving Scheme
These are tax saving mutual fund schemes giving the dual benefits of tax saving along with high market-linked returns. The minimum lock-in period of the equity-linked saving scheme is 3 years.
- Tax Saving Fixed Deposit
These schemes are similar to fixed deposits but have a minimum lock-in period of 5 years. The interest earned on Tax saving fixed deposits from 7% to 9%.
- Sukanya Samriddhi Yojna
This is a government-backed scheme where you can invest a maximum of Rs 1.5 lakh annually. If you are blessed with a baby girl, you can easily open an account in the name of a baby girl and earn an interest of up to 8.5%.
- Senior Citizen Saving Schemes
Senior Citizen Saving Schemes have a minimum lock-in period of 5 years and are available to those whose ages cross above 60 years. The interest rate of SCSS is higher than prevailing FD rates and is currently 8.7%.
Other Tax Saving Options Beyond Section 80C
Take a Home Loan
Did you know that taking a home loan could also provide you with tax saving? As per section 80C under the Income Tax Act, paying the amount for both the principal and interest rate of your home loan will be exempt from taxation.
Make Voluntary Donations
You can also save tax by making voluntary donations in numerous relief funds such as the PM relief fund, funds for control of drug abuse and other similar funds. All these donations are completely exempt from taxation under section 80G of the Income Tax Act.
Restructuring of Salary
Restructuring of salary allows employees to restructure their salary in such a way that they are eligible for tax saving allowances.
These allowances include conveyance, House Rent Allowance (HRA), medical treatment etc. You can also claim tax exemptions on Leave Travel Allowance twice in four years.
Tax Saving on Education Loan
Interest paid on education loan is allowed as deduction under section 80E.
How to Plan Your Tax Saving Investments for the Year
The best time to start your tax planning investment is at the beginning of the financial year. Many taxpayers deliberately delay their tax planning which results in hurried decisions. Instead, if you plan tax saving at the beginning of the year, your investment can compound and achieve long term goals.
The above methods explained are various tax-saving methods that allow people to save taxes under different sections of the IT Act.
However, it is important to note that not all tax savers are the same, hence one should select the investments that best suit their individual needs.
The liquidity, safety and returns of the tax investment should be taken into consideration. Make sure that your financial decision is not only based on the returns to be gained from the products but also depends on the different goals that you have set for yourself.
Therefore, it is important to have a clear cut objective about investments and the tax-saving scheme should be linked to the desired objectives.
For more information regarding investment schemes, kindly visit www.swastika.co.in.