Overview: Tax Saving Options
As an Indian citizen, you have to obey the laws and pay your share of taxes. But stay relieved because you don’t have to submit the whole amount. As per Section 80C of the ITA (Income Tax Act), you can easily bring down your tax obligation each year, as stated by the legislation. To save on tax, there are several ways under Section 80C you can pick. These are Employee Provident Fund (EPF), National Pension Scheme (NPS), Equity Linked Saving Scheme (ELSS), Unit Linked Insurance Plan (ULIP), Sukanya Samriddhi Yojana (SSY), Public Provident Fund (PPF), Fixed Deposit (FD), and National Savings Certificate (NSC).
In this article, we will help you understand how to plan for such tax-saving investments, along with a proper explanation of all the above-mentioned terms.
How To Plan For Tax Saving Investments?
Usually, people start thinking about the tax-saving investment only when they reach the ending quarter of the fiscal year. But keeping the tax-saving planning for last is a poor investment decision. It is preferred that an individual begins his tax planning at the start of the fiscal year. This will allow you some time and keep you invested for a greater period. And by implying this method, you can attain your business goals easily.
Below are mentioned some of the steps to assist you in planning your tax-saving reserves proficiently:
- Confirm if there are any premiums or paid funds that were paid during the year and are up for tax deductions. For example, the submissions towards EPF, tuition, and school fees, home loan repayment, etc are entitled to tax deductions.
- Determine your risk profile and investment targets to pick the apt investment path.
- Put an appropriate amount of cash to attain your business goals and preserve tax too.
Book end-to-end experts consultation with Odint legal, accounting and company formation experts.
Equity Linked Saving Scheme (ELSS)
ELSS is the short form for Equity Linked Saving Scheme. It is a mutual fund scheme with at least 80% of its assets invested in the stock market. As a consequence, the profits of ELSS funds fluctuate depending on their market representation. They are, nonetheless, very important for investors because of the possibility of high returns.
ELSS plans are also called tax-saving mutual funds since they allow you to claim an amount of Rs. 1.5 lakh in yearly investments within Section 80C of the Income Tax Act. Another significant benefit of ELSS funds is that they have a 3-year lock-in term. It is the shortest lock-in period of any tax-saving investment option available in India. ELSS mutual funds may be the solution if you’re searching for a decent tax saving option with the possibility for acceptable returns plus a short lock-in term.
Read More: Equity Funds
National Pension Scheme (NPS)
Now coming to the NPS, the National Pension System. This is a scheme that helps all the working employees and professionals from the disorganized sector to aid through pension, after their retirement. Any Indian citizen who falls anywhere between the age of 18-and 60 years, can start his/her NPS account. As per Section 80C of the ITA, funds up to INR 1.5L are entitled to tax deductions. An individual can also attain a tax advantage on funding of INR 50,000 as per Section 80CCD(1B). Because NPS is a pension scheme, the contributions are accepted only till the investor reaches the age of 60.
Unit Linked Insurance Plan (ULIP)
The ULIP or Unit Linked Insurance Plans are economical schemes that give investors investments and insurance in one package. This plan helps funders establish wealth and also provides them with life insurance.
Some amount from the funds is submitted in life insurance, and the rest of the funds are put into debts, equities, or both. ULIPs are best suited for people who wish to attain their future goals like your ward’s education, retirement life, or other major economic targets.
As per Section 80C of the ITA, the sum you give for ULIP is up for tax deduction. On the premium, you can attain a tax deduction of INR 1.5L each year. Then when your scheme matures, the policy returns become non-taxable as per Section 10(10D).
Public Provident Fund (PPF)
Coming on to the PPF or the Public Provident Fund is a known and common investment plan utilized to preserve the tax. This scheme is also considered the safest as it is filed by India’s central government. By this plan, one can get a tax deduction of INR 1.5L, every year, as per Section 80C of the ITA.
But this plan is valid just for the term of 15 years. After this time duration ends, one has the chance to up the tenure of investment for additional 5 years. The ones taking up this plan will have to fund it each year to keep the account status active. As per the rules, INR 500 is the minimum investment amount per year, and INR 1.5L is the maximum amount. With this plan, you have got tax exemption on making an annual contribution, on gained interest, and maturity proceeds. That’s why the Public Provident Fund is considered a famous tax saving plan among Indian lenders.
Sukanya Samriddhi Yojana (SSY)
This is a saving plan put forward by the government to promote the agenda of the development of the girl-child. Developed in 2015, SSY is a part of the campaign of Beti Bachao, Beti Padhao. This initiative aims to urge parents to save the birth of their girl child. The funds claimed from this plan can assist parents in meeting the future expenses of their child such as her expenses in education, and her marriage.
One can start this account in certain private or public banks, or even in post offices present anywhere in India. The Indian government has put the investment interest rate on each quarter in this scheme. One can invest a minimum amount of INR 250, and the maximum investment amount is INR 1.5L in a fiscal year. Once done, your SSY account with gain interest on the net amount. After the girl reaches the age of 18, you can make 1 limited withdrawal. This will help you in meeting her education cost.
With this scheme you will get the following tax advantages:
- Tax saving till INR 1.5L every year as per the ITA’s Section 80c.
- Tax exemption on net investment interest.
- Exemption from tax on the total matured sum. This expands the savings and makes sure the investment grows in the best possible way.
National Savings Certificate (NSC)
The NSC or the National Saving Certificate is another tax-saving investment plan placed by the government of India. You can start an NSC account by visiting an Indian post office. Talking about the risks that come with it, it is just like the Public Provident Fund, as it provides assured returns to the lender. But the investment tenure under NSC is just 5 years, differing from the PPF.
The sum amount is to be paid at the time of investment’s maturation. The tax exemption can be claimed on funding up to INR 1.5L each year as per the ITA’s Section 80C. Individuals can also fund more than the mandatory amount as there isn’t any set limit. If your appetite is low-risked, this type of tax-saving investment plan is suggested to you.
Fixed Deposit (FD)
The tax saving FDs are almost similar to the usual Fixed Deposits. There are just 2 major differences:
The tax saving fixed deposits offer you a tax exemption in funds up to INR 1.5L as per Section 80C of the ITA. Plus, they remain valid for just 5 years.
The regular Fixed Deposits are such that you can claim your savings before the scheme matures by submitting a fine. There is no such option in the case of tax saving FDs. The minimum funding limit for the tax saving FD is INR 1,000.
Any Indian resident and citizen can use a tax saving a fixed deposit and enjoy its perks. This tax saving FD plan is best for individuals who wish to put money on a less risky path for a better future. Such tax saving FDs offer fund safety for the whole lock-in period, and also provide assured income. The ROR on such FDs varies from bank to bank. But, the interest in this plan is taxable.
Senior Citizens Savings Scheme
Any contributions made to the Senior Citizens Savings Scheme (or SCSS) are tax deductible up to the allotted maximum 80C limit, which is Rs. 1.5 lakh. People over the age of 60 are entitled to receive benefits from SCSS, which has a minimum lock-in duration of 5 years (people opting for voluntary retirement schemes are qualified for enrollment in SCSS once they reach the age of 55).
NABARD Rural Bonds
The National Bank for Agriculture and Rural Development is known as NABARD. The Income Tax Act of India allows for tax exemptions for Rural Bonds issued by NABARD. Under Section 80C, the highest deduction amount is limited to Rs. 1.5 lakh.
Employee Provident Fund (EPF)
Last but not the least, the EPF, Employee Provident Fund is a scheme perfect for the workers. It’s a retirement saving plan put forward by the government of India and can be availed by all salaried workers. As per this scheme, one can submit some amount from their salary. For firms with 20 workers or less, a 10% rate is suggested. Female workers, for the 1st three years, need to give 8% of their salary so that they can increase their home-pay taken every month. This value is cut monthly by the company and sent to the EPF. Your company will also match your fund contribution.
Book end-to-end experts consultation with Odint legal, accounting and company formation experts.
The Indian Income Tax Act’s Section 80C provides individuals with a number of tax-saving choices to lower their tax obligations while encouraging long-term financial management and investments. This section offers a variety of allowable deductions, enabling taxpayers to deduct certain investments, costs, and donations up to a certain maximum. Employee Provident Funds (EPF), National Pension Schemes (NPS), Equity Linked Savings Schemes (ELSS), and other strategies fall under Section 80C, which allows for tax savings.
Now that you have reached the end of this article, we assume that by now you must have gotten a clear idea of how to plan for tax saving investment, and what are the best schemes that you can take up. So, what are you waiting for? Contact us at ODINT Consulting and secure your future today!
The 3 major steps you need to follow to plan for tax savings are:
- Check for premiums or paid funds paid and are up for tax deduction
- Choose your investment goal and identify your risk profile to select the best investment roadmap
- Fund enough to fulfill your financial targets and attain tax exemption too
The different tax saving investment schemes are as follows:
- National Pension Scheme (NPS)
- Employee Provident Fund (EPF)
- Unit Linked Insurance Plan (ULIP)
- Equity Linked Saving Scheme (ELSS)
- Public Provident Fund (PPF)
- Sukanya Samriddhi Yojana (SSY)
- National Savings Certificate (NSC)
- Fixed Deposit (FD)
With the help of tax saving investment plans, you can secure your and your family’s future, and also preserve the tax. These schemes will help you in managing all your major future expenses.
Reshma Ali has great expertise in mergers & acquisitions, Financial planning, and international company formation and offers advice and knowledge to help businesses achieve their objectives.