It is your civic duty to pay your taxes on time. However, taxes have a huge impact on your pockets, as they reduce your earnings. As an informed individual, your aim is to reduce your tax liability. You are always looking to learn different ways on how to save tax. A healthy budget will ensure that you remain financially responsible and always make well- informed decisions. If you do not plan well, you will not be able to saves tax. Hence, it is important to be aware of the different tax saving methods in India.
Tax saving methods
Listed below are some common tax-saving options available for individuals in India to help save tax as per the Income Tax Act, 1961.
1. Home loan repayment
If you have a home loan, the Equated Monthly Installments (EMIs) will help reduce the burden of taxes. You will be able to claim a deduction of the interest component and principal amount of the installment. If you are repaying the home loan for your first house, you can save a higher amount of tax. The deductions will be available under Section 24, Section 80C, and Section 80EE.
2. Term insurance
A term insurance plan is one of the best tax-saving instruments. You can claim a maximum tax deduction of INR 1.5 lakh under Section 80C on the premium amount paid for term insurance. Investing in a term insurance plan is one of the best tax-saving tips, as the death benefit is also tax-free according to Section 10 (10D).
3. Rent paid
According to Section 80GG of the Income Tax Act, there is a deduction on rent paid and it is covered under ‘House Rent Allowance’.
4. Employee Provident Fund (EPF)
Investing in an EPF can help in tax saving. EPF is the amount contributed by you in your Provident Fund (PF) or EPF account. It can be claimed as a Section 80C. The interest, as well as, the maturity amount is exempt from tax if you have completed five years in the company.
5. National Pension Scheme (NPS)
NPS is a low-risk and highly secure investment option. The investment is eligible for a for income tax deduction under Section 80C.
6. Sukanya Samriddhi Scheme
This scheme is available only for parents or guardians of a girl child and it offers a higher return as compared to a PF or Public Provident Fund (PPF).
7. Donations
Charitable donations will make you eligible for tax exemption up to an amount of INR 2,000 under Section 80G.
8. Unit-Linked Insurance Plans (ULIPs)
ULIPs are one of the most preferred tax saving instruments in the country. If you have excess cash, you could invest it in ULIPs. If the premium paid is below 10% of the sum assured, you can avail of tax benefits. Moreover, the returns earned while investing in ULIPs are also tax-free.
Consider these tax-saving options to reduce the amount of tax payable by you. Do not make an investment keeping the tax benefit in mind, consider your long- term goals, risk, and return before you make a call. It is important to make a well- informed decision to enhance the returns and make the most of tax benefits.
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