How to save your money from the Axes of Taxes?
When you get your first job the happiness of the first salary being credited is one moment to remember for life. You banking upon a good job and getting paid for it marks your entry into the crazy world which is driven by money. When you get a good job suddenly you find yourself receiving all sorts of offers ranging from pizza to credit cards at a click of a button. Did you ever realize the reason behind such special treatment for you? Well the bitter truth is that it’s the government who too wants its share in the form of taxes. Yes, your entry into the workforce also marks your entry into taxpayers’ list.
After listening to all this we are sure your mind must have started alarming on how to save your hard-earned money from the brunt of these Taxes.
According to a wise old saying, “A penny saved is a penny earned”. By undertaking tax planning in India you can save a lot more than a few pretty pennies. Tax saving plan is an important part of financial planning. If wisely done, it can serve a dual objective – help individuals meet their financial goals and also save tax in the process. Thus, Tax savings solutions not only helps to reduce your tax burden but at the same time, aim to grow your money through equity investments.
Under Section 80C of the Income Tax Act, there is a total investment limit of Rs. 1.5 lakh to avail tax benefit. Please do remember that one or more items taken together the total investment amount should be a maximum of Rs. 1.5 lakh to entitle you to a deduction u/s 80C. The benefit of Rs. 1.5 lakh on tax saving instruments is available to everyone, irrespective of his or her income levels. Thus, in the highest tax bracket of 30%, some tax can be saved by investing Rs. 1.5 lakh before the financial year ends. However, there is a minimum lock in of three to fiveyears for availing income tax deduction. It means if you wish to avail tax deduction u/s 80C by investing in any of the investments formats, you cannot withdraw the money within three years or five years of investment. Most common investments under section 80C on five basic parameters are returns, safety, flexibility, liquidity and taxability. Every investment has its pros and cons.
Often multiple options, contradictory advices, and a fast approaching deadline strangle taxpayers during the beginning of the year when they have to make tax-saving investments. However, there is several tax saving planspertaining to your investment segments. Here are some legitimate avenues and tax planning tips, which can help you, reduce the amount of tax that you pay.
Equity Linked Saving Scheme (ELSS)
ELSS refers to equity-oriented mutual fund schemes that invest in a diversified portfolio of Indian stocks. ELSS schemes can be purchased online and come with a lock-in period of 3 years.
Public Provident Fund (PPF)
PPFis the most preferred mode for your best tax saving plan. You invest in it and you get a deduction on your income. Besides, the interest you earn on it is tax-free. Since it is a scheme run by the GoI, it is also a safe investment tool.
In case you have taken a loan to buy property, you are eligible to get a tax deduction on the interest that you pay, to an unlimited extent under Section 24(b) and principal amount to the extent of 1 Lakh under Section 80C.
Life Insurance and Pension Plans
Life insurance and other retirement/pension plan with or without life cover are one good option you should consider for your tax saving plan. The overall exemption available under Section 80C, 80CCC, 80CCD is Rs 1.5 lakh per annum.
Health insurance premium payment
Non-residents can purchase health insurance policies in India for themselves, their family and also dependant parents and claim a deduction under section 80D for the premium paid up to Rs25,000, in case of non-senior citizens and Rs30,000 for senior citizens.
Donations for specified entities
When you make donations for specified entities you are eligible for a deduction under section 80G of upto 50% or 100%, depending upon the institution to which the donations are made.
Interest payment towards Educational loan
If you have taken a loan from any bank/approved financial institution for higher studies for yourself or any immediate family member, then the entire interest payable is eligible for deduction under section 80E