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Ref. No. KLI/22-23/E-BB/492
Ref. No. KLI/22-23/E-BB/490
Life insurance policies, public provident funds, and equity-linked saving schemes are popularly known income tax saving options. There are alternative investment instruments, too, that allow you to make and conserve money.
How to save tax, or more specifically, how to opt for the best investment plan, is a question that each of us has. Tax planning is important, but so are tax-saving strategies. With the finest schemes in India, you can invest your money in the most reliable tax saving options.
Lesser known tax saving options are listed below
The beginning of the fiscal year is the best time to plan for such investments. This will ensure that you are able to reduce your expenses and avail year-long profits. While each individual wants to save money on taxes in India, only a few of us are successful. This could be a lack of information or difficulty incorporating the best-suited plan into your investing strategy.
When it comes to tax saving investment options, life insurance policies, public provident funds, ULIPs, or even equity-linked saving schemes are some of the instruments that pop into your head immediately. However, there are some other means through which you can save taxes.
So, we’ve compiled a list of the nine unusual investment avenues that can serve as the best tax saving options in India. Read on to learn more about these options and draw a comparison to make an informed investment decision.
When people inquire about income tax saving schemes, one of the most common solutions is the National Pension Scheme. It enables people to save money for their retirement plans in the future. You can pay the schemes on a regular basis whenever it is convenient for you. This plan is open to all Indian nationals between the ages of 18 and 60. You can avail deductions for your NPS investment under Section 80C and Section 80CCD (1B).
If your parents are senior citizens, they may be eligible for higher tax advantages and income limits. You can invest on their behalf and count it as a gift if their post-retirement income is in a lower tax bracket than yours.
There will be no tax on the present you give them, and any future earnings from the investment will be theirs to claim. Senior citizens’ fixed deposit plans, post office schemes, and even equity mutual funds are all tax saving ideas you can consider.
Section 80G of the Income Tax Act permits you to fulfill your social responsibilities by donating to designated charities or religious organizations. You can get a 50-100% tax exemption if you donate to such a charity. In addition, the government has set up funds such as the PM National Relief Fund, National Defense Fund, PM CARES Fund (established specifically for COVID-19 initiatives), etc., that can assist you in achieving a 100% exemption.
The Hindu society’s traditional joint family structure resulted in a distinct tax personality in the Indian Income Tax Act, the Hindu Undivided Family. If you have many sources of income in addition to your pay, declaring them as HUF profits will significantly lower your tax liability. For Hindus, Sikhs, Jains, and Buddhists, the HUF is considered a separate financial organization that can act on behalf of all family members. Family members can donate their extra personal income to the HUF and avoid paying tax on any later revenue from investments made with those funds.
Individuals can claim tax deductions of 50-100 per cent when they donate to certain political parties certified by the Election Commission of India. These contributions can be made directly to a registered political party (under section 29A of the Representation of the People Act, 1951) or indirectly to a registered electoral trust.
In addition, if payments are made by check, net banking, or UPI, deductions are available under section 80GGC. Donations made in cash or in-kind, on the other hand, do not qualify for tax deductions.
It is a fixed-income investment instrument that can be obtained from a post office. It motivates small and middle-income persons to invest by offering tax deductions under section 80C of the Income tax act. If you are an Indian individual looking for a safe avenue to park your funds, NSC is a great option. You will get guaranteed interest at an annual rate of 6.8% and tax benefits up to ₹1,50,000 per annum.
Launched with the aim of empowering the girl child, it is one of the best tax saving schemes. It can be opened at a post office or bank. You will be able to earn 7.6% p.a. interest. The principal amount will mature when the girl turns 21 or gets married after turning 18. The invested amount, interest received as well as maturity amount are eligible for tax benefits. Maximum two accounts can be opened in one family.
If you are a citizen above the age of 60 looking for the best investment to save tax, do not look further. You can deposit an amount between ₹1,000 and ₹15,00,000 under this scheme. The amount invested to the maximum limit of ₹1,50,000 will be allowed as a tax deduction. SCSS can provide you with a consistent income source after retirement. It offers a high-interest rate of 7.4% p.a. and a maturity period of 5 years.
To promote the savings culture and develop domestic capital markets, the government offers tax incentives under Section 80CCG. First-time investors with gross total income not exceeding ₹12,00,000 per annum are covered under this provision. They can reduce their taxable income by claiming a 50% deduction on the investment amount. It is, however, subject to a maximum limit of ₹50,000. This is in addition to the Section 80C limit.
The government introduced an alternative tax regime in FY 2020-21. If you choose to forgo exemptions, it offers you the choice of lower tax slabs. It is an optional scheme. You should assess your tax liability under the old as well as the new regime before taking a decision.
The government derives a sizable portion of its revenue through income tax. However, it gives citizens many opportunities to reduce their tax burden through sections 80C-80U of the Income tax act. This is done to promote certain expenditures and boost tax compliance. Apart from the above investment options, there are other ways to save tax. Some of them are listed below.
Obtaining a Medical Insurance
Assessee can use section 80D to claim a deduction of ₹25,000 for mediclaim taken for spouse and dependent children. An additional ₹25,000 is available for a policy taken for parents, and ₹50,000 can be claimed to cover parents who are senior citizens.
Taking a Home Loan
Sections 24, 80C, and 80EE of the Income tax act provide tax benefits on the principal and interest amounts of a home loan. As a result, you can fulfill your dream of owning a house while minimizing your tax burden.
If you take a loan to obtain higher education for yourself, your spouse, or your children, Section 80E makes you eligible for tax savings. The total interest paid can be claimed without any maximum limit. However, exemption is not available for the principal amount. The loan can be used to finance education in domestic or foreign institutions.
Income tax returns are used to report taxable income, tax liability, and deductions claimed. Luckily, online mode has made the filing process hassle-free. Timely submission of returns will protect you from penalties and interest expenses. It is one of the most fundamental tax saving tips.
To maximize your financial efficiency, consider India’s tax saving options and make a well-thought-of strategy. Tax planning is the most effective financial strategy, and anybody who pays income tax can benefit from it. Making sound tax-saving investments and participating in reputable financial instruments are the best ways to save money on taxes. Assessing the various tax saving schemes to enjoy many tax benefits can simplify one’s financial path.
Ref. No. KLI/22-23/E-BB/999
Ref. No. KLI/22-23/E-BB/490