How to save taxes, or better, how to organise your investments, is a question that we all have. While tax preparation is important, tax saving plans are also necessary. With the finest tax saving plans in India, you may save money while also earning money.
The beginning of the fiscal year is the best time to prepare for tax saving plans. This ensures that you do not pay additional taxes and save taxes in India, as well as year-long rewards on tax saving plans.
In India, we all want to save taxes, but only a few of us succeed.
The answer might be a lack of understanding or difficulties in incorporating the best-suited option into your investing strategy. We have covered each of the greatest tax saving investment alternatives in India in this post to help you compare and make an informed investment decision.
When considering how to save tax in India, keep in mind that your objective should be more than just tax savings. The objective must be to invest in the best-suited investment option while also saving money on taxes. In this post, we’ve compiled a list of the top tax saving plans for 2021-22.
1. Unit Linked Insurance Plan (ULIP)
One of the most prominent investment plans in India is the ULIP Life Insurance Plan. It assures that one’s family is financially secure in the event of death. The taxpayer can take advantage of the income tax benefit by acquiring a life insurance policy.
The premium paid toward the acquisition of a life insurance policy is deductible up to Rs. 1.5 lakh under section 80C of the Income Tax Act of 1961. Furthermore, income from the policy’s maturity is tax-free under Section 10(10D). If the premium is less than 10% of the total insured, the income is tax-free.
If the money is transferred to the nominee of the person covered, it is tax-free in the nominee’s hands. The taxpayer can claim a 20% tax deduction on the premium paid under Section 80C of the Income Tax Act of 1961.
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2. ELSS Mutual Funds
Equity Linked Savings Schemes are mutual funds that invest a significant portion of their assets in equity. Furthermore, the fund has a three-year obligatory lock-in period, which is the shortest of any investment product.
Investment in ELSS funds is deductible under section 80C of the Income Tax Act, up to a maximum of Rs. 1.5 lakh. The deduction is available for both lump sum investments and investments made under a systematic investment plan (SIP). Because ELSS funds engage heavily inequities, there is always some risk involved.
ELSS funds provide both capital appreciation and tax savings. As a result, it is one of the most popular tax saving plans among investors. In general, taxpayers who wish to claim Section 80C tax deductions of up to Rs 1.5 lakh and are ready to assume some risk can consider investing in ELSS.
These mutual funds are equity-oriented, with a minimum of 60% of their portfolio invested in equities and equity-linked assets. As a result, it is critical to remain invested in the funds for an extended length of time to reap the benefits of the returns.
3. Public Provident Fund (PPF)
The Public Provident Fund has traditionally been one of the taxpayers’ most popular tax saving plans. One of the primary reasons for its popularity is that PPFs are tax exempt. PPF accounts can be opened at a bank or a post office.
Taxpayers can claim a deduction for the amount invested during the fiscal year under Section 80C of the Income Tax Act. The highest amount that may be deducted is Rs. 1.5 lakhs. Because PPF comes within the exempt category, the interest and maturity amounts are tax-free.
4. Sukanya Samridhi Yojana (SSY)
Sukanya Samriddhi Yojana has grown to be one of the most prominent tax saving plans. The government of India introduced it in 2015 as part of the Beti Bachao Beti Padhao initiative. It had a significant influence on the general people.
The plan allows for a fixed income investment in which the taxpayer can make monthly contributions while earning interest. Investing in the Sukanya Samriddhi Yojana is also deductible under Section 80C of the Income Tax Act.
The rate of interest on the programme is determined quarterly by the government of India and is payable at maturity. The plan has a 21-year lock-in term and will mature when that period expires. A minimum deposit of Rs. 250 is required every year for 15 years.
Failure to pay the required amount in a year will result in the account being disconnected. To reactivate the account, you must pay a Rs. 50 penalty in addition to the original Rs. 250 deposit.
5. National Pension Scheme ( NPS )
The National Pension Scheme, or NPS, has grown in popularity as a tax-advantaged investment vehicle. It is one of the best tax saving plans open to both government and private sector employees. It enables the depositor to establish a corpus for retirement while also receiving a regular monthly income. The depositor’s money is invested in a variety of schemes, including the stock market.
Tier-1 and Tier-2 NPS accounts are available. A tier-1 account is locked in until the subscriber reaches the age of 60. The subscriber’s donations to tier-1 are tax-deductible under sections 80CCD(1) and 80CCD(2) (1B). Tier-2 accounts are optional allowing the subscriber to withdraw funds whenever they choose. Contributions to tier-2 accounts, on the other hand, are not tax-deductible.
Individuals can claim a deduction of up to Rs. 1.5 lakh under Section 80CCD by investing in NPS. In addition, a new sub-section 1B was added, which provided an extra deduction of up to Rs. 50,000/- for contributions paid to the NPS by individual taxpayers.
Wrapping It Up
You can reduce your tax burden by participating in tax saving plans offered by the government and private organisations. By investing in these schemes, you will be able to take advantage of tax deductions and exemptions under different sections of the ITA.
In India, income taxes can be decreased slightly by investing wisely in tax saving plans. There are several options to minimise an individual’s tax burden by properly utilising the various schemes.
Sections of the Income Tax Act of 1961 dealing with tax deductions and exemptions include Sections 80C, 80D, 80CCF, and others. Many government and private-sector groups provide a variety of tax saving plans to Indian citizens.
