Taxes are an unavoidable part of life, but did you know that strategic investments can significantly reduce your tax burden in India? By leveraging various investment channels, you can not only save taxes but also grow your wealth. Let’s see ten tax saving Plans designed with Indian taxpayers looking to reduce their tax obligations and maximize their wealth in mind.
10 Tax Saving Plans :-
1. Equity Linked Savings Scheme (ELSS)
Equity Linked Savings Schemes (ELSS) are mutual funds that allocate a significant portion of their portfolio to equity investments. With a mandatory lock-in period of three years, ELSS stands out as one of the shortest-term investment options available, making it an attractive choice among tax-saving schemes in India.
Investing in ELSS offers tax benefits under Section 80C of the Income Tax Act, allowing deductions of up to Rs. 1.5 lakh. This deduction applies to both lump sum investments and investments made through systematic investment plans (SIPs). However, it’s important to note that ELSS funds carry inherent risks due to their heavy reliance on equity investments.
ELSS funds not only provide opportunities for capital appreciation but also serve as efficient tax-saving instruments. Consequently, they have gained popularity among investors seeking both growth potential and tax benefits.
In essence, ELSS suits taxpayers aiming to maximize Section 80C tax deductions of Rs. 1.5 lakh while being open to assuming some level of risk. These funds maintain an equity-oriented approach, with at least 60% of their portfolio invested in equity and related instruments. Therefore, investors should commit to holding their investments for an extended period to fully capitalize on potential returns.
2. Unit Linked Insurance Plan (ULIP)
The ULIP Life Insurance Plan is the most significant tax-saving scheme in India. It ensures that a person’s family is financially secure in the event of death. By purchasing a life insurance policy, the taxpayer can avail of the benefit under the income tax act.
The income tax act of 1961 allows for a deduction of up to Rs. 1.5 lakh for the premium paid toward the purchase of a life insurance policy under section 80C. In addition, the maturity income of the policy is exempt from taxes under Section 10(10D). If the premium does not exceed 10% of the sum assured, the income is tax-free.
3. Public Provident Fund (PPF)
The Public Provident Fund has always been one of the popular tax saving schemes amongst taxpayers. One of the major reasons for this popularity is the fact that PPF falls under the category of exempt–exempt–exempt tax status. You can open your PPF accounts with a bank or post office.
The PPF account has a 15-year lock-in term and offers investors the following choices when the maturity period ends: withdrawal of proceeds from the account or continuing for the next five years.
4. National Pension Scheme (NPS)
A tax-saving scheme designed to help individuals build a corpus for their future retirement needs while providing a regular income stream.
Tier-1 Account: Has a lock-in period until the subscriber reaches the age of 60 years. Contributions to this account are tax-deductible under section 80C of the Income Tax Act.
Maximum Contribution: Up to Rs. 15,000 per annum can be contributed to a Tier-1 account, eligible for tax deduction.
Tax Deduction: Contributions made to NPS are tax-deductible under section 80C of the Income Tax Act. Deposits can be made using online or offline methods, utilizing valid KYC digital, credit card (Visa & MasterCard), or debit cards issued by RBI-approved Indian banks or financial institutions.
Section 80CCD: Individuals can claim deductions of up to Rs. 1.5 lakh by investing in NPS. This includes contributions made towards a Tier-1 account.
Additional Deduction: A new sub-section 1B was introduced, offering an additional deduction of up to Rs. 50,000/- for contributions made by individual taxpayers towards the NPS, providing further tax benefits.
5. Interest on Home Loan Tax Deduction
Individuals can claim the interest component on a housing loan as a tax deduction under certain conditions.
Eligibility Criteria:
- A home loan must be taken for the purchase or construction of a house.
- Construction of the house must be completed within five years from the end of the financial year in which the loan was taken.
Tax Saving Opportunity: Claiming the interest on a home loan as a tax deduction is considered one of the best tax-saving schemes in India.
Deduction Limits:
- Under section 24 of the Income Tax Act, individuals can claim a deduction of up to Rs. 2 lakh on the interest component of the home loan.
- This limit applies in the case of a self-occupied property.
No Upper Limit for Let-Out Property: In the case of a property that is let out, there is no upper limit for claiming the interest paid on the home loan as a deduction.
Benefit for Taxpayers: Claiming the interest on a home loan as a tax deduction provides significant tax benefits to individuals, helping them reduce their taxable income and save on taxes effectively.
6. Savings Bank Account Interest
A savings account or current account is a fundamental banking service that allows individuals to deposit money securely. It offers liquidity, enabling withdrawals at any time without restrictions.
Tax Deduction for Senior Citizens:
Senior citizens are eligible for a tax deduction on interest earned from fixed and post office deposits under Section 80TTB.
Deduction Limit:
Under Section 80TTA, taxpayers other than senior citizens can claim a maximum deduction of Rs. 10,000 on interest earned from savings bank accounts.
The Rs. 10,000 limit applies to the total interest earned from all savings bank accounts held by the taxpayer.
Tax Treatment for Excess Interest:
Any interest earned beyond Rs. 10,000 is taxable under “Income from Other Sources”.
The tax rate applied will be as per the taxpayer’s applicable income tax slab rate.
7. Tax-Saving Fixed Deposits: A Secure Option
Tax-saving fixed deposits are often considered one of the safest methods to save on taxes, providing investors with a reliable and stable investment option.
Unlike investments in stocks or equity, tax-saver fixed deposits offer a lower risk profile while still ensuring decent returns.
Key Features of Tax-Saving Fixed Deposits:
Tax Deduction Eligibility: Investments made in tax-saving fixed deposits qualify for deductions under section 80C of the Income Tax Act, allowing individuals to lower their taxable income.
Government-Backed Interest Rates: The interest rates offered on these deposits are guaranteed by the government of India, providing investors with assurance and security.
Minimum Lock-in Period: Tax-saving fixed deposits come with a minimum lock-in period of 5 years, offering a long-term savings option with the added benefit of tax savings.
8. Sukanya Samriddhi Yojana (SSY): Empowering Girls' Futures
A Vital Tax-Saving Scheme:
Sukanya Samriddhi Yojana stands out as one of the most crucial tax-saving schemes introduced by the Indian government in 2015, as part of the Beti Bachao Beti Padhao campaign. Its inception has had a significant impact on the populace, particularly families with girl children.
Investment Opportunity:
This scheme offers a straightforward way to invest, allowing regular deposits with interest earnings. Notably, investments in Sukanya Samriddhi Yojana qualify for tax deductions under section 80C of the Income Tax Act, making it a win-win situation for families.
Tax-Free Growth and Preparation for the Future:
Sukanya Samriddhi Yojana is a government-backed initiative, widely regarded as one of India’s premier savings schemes. Depositors can enjoy tax-free growth while securing their financial future. The government determines the scheme’s interest rate, payable upon maturity.
Lock-In Period and Account Reactivation:
The scheme comes with a lock-in period of 21 years, and you need to pay a minimum amount in a year for 15 years before the account will be disconnected. To re-activate the account, you need to pay a penalty of Rs 50 and an original deposit of Rs 250, which will be deducted from your balance.
Exclusivity for Girl Children:
Only girl children are eligible to avail of the benefits offered by Sukanya Samriddhi Yojana. This special provision ensures that the scheme directly contributes to empowering and securing the futures of young girls.
Time-Sensitive Investment Opportunity:
Investors are given a one-year window to invest their money and claim tax benefits under this scheme, highlighting its accessibility and flexibility for taxpayers.
Sukanya Samriddhi Yojana isn’t just a scheme; it’s a pathway to a brighter tomorrow for India’s daughters.
9. Senior Citizen Savings Scheme (SCSS): A Financial Haven for Seniors
Your Trusty Tax-Saving Partner:
For seniors in India, the Senior Citizen Savings Scheme is like a trusted companion on their financial journey. It’s designed to help them save on taxes while securing their future.
Easy Access-Great Returns:
Whether it’s through banks or post offices, seniors can easily invest in this scheme and enjoy some of the best interest rates available. It’s a simple and reliable way to grow their savings.
Tax Benefits Made Simple:
Deposits made into the Senior Citizen Savings Scheme qualify for tax deductions under section 80C of the Income Tax Act. Seniors can claim deductions of up to Rs. 1.5 lakhs from their taxable income.
While the interest earned on these deposits is taxable, only amounts exceeding Rs. 50,000 are subject to tax deduction.
The Senior Citizen Savings Scheme is more than just a savings option; it’s a helping hand for seniors to navigate their finances with ease and peace of mind.
10. Rent Paid but No HRA? Here's What You Need to Know
Understanding the Situation:
Typically, House Rent Allowance (HRA) is a key component of your salary, offering significant tax-saving benefits. However, there are instances where HRA may not be included in your salary package.
Navigating the Absence of HRA:
If you find yourself in a situation where HRA is not part of your salary, claiming the standard HRA deduction becomes unavailable, even if you’re paying rent. While this may seem like a setback, there’s still a route to leverage tax benefits for your rental expenses.
Exploring Section 80GG:
In such cases, Section 80GG of the Income Tax Act comes into play. This section allows taxpayers to claim a deduction for the rent paid, subject to specific conditions being met.