As the adage goes, ‘A penny saved is a penny earned’ and if anyone knows anything about tax planning, it is the best way to save penny as one gets to save on taxes while increasing your income.
The Income Tax Act allows taxpayers to get deductions on a variety of investments, savings, and expenditures made during a given fiscal year. Considering the fact the fiscal year 2024-25 is coming to an end, and there is little time left to invest in tax-saving strategies, a guide that can provide you various tax-saving options is a must and especially if your income comes under the income tax slab, this guide is must for you.
ELSS Mutual Fund: The equity-linked Saving Scheme comes with two features that makes it preferable among the policyholders. Under section 80C, first, the investment amount under the ELSS scheme is tax deductible up to a maximum of Rs.1.5 lakh under the section 80C. Second, the equity-linked savings scheme investment is locked in for three years. The annual return offered by ELSS funds ranges from 5% to 18%. The returns in an equity-linked savings plan are not constant because they vary according to the fund’s market performance. They are preferred because it provide liquidity and flexibility in investment, making them ideal for risk-takers.
If the ELSS returns reach Rs. 1 lakh in a fiscal year, they are liable to 10% long-term capital gains tax (LTCG). One must understand if one particular ESS does great in the particular period, it doesn’t necessarily mean that it will be best in the following period as well. The best ELSS fund should be chosen based on its performance during the bull and bear market cycles.
National Pension Scheme (NPS): According to the Pension Funds Regulatory and Development Authority (PFRDA), the National Pension Scheme is intended to assist individuals save for retirement. The National Pension Scheme (NPS) benefits both government and private employees any body between the age of 18 to 70 is eligible to apply.
NPS is a smart tax-saving investment choice because the fund management fees are relatively low. If you fall in the 5% income tax slab, you can invest in this plan. The NPS program divides fund management into four accounts: equities, corporate bonds, government securities, and an alternative investment fund (AIF), which invests in assets such as venture capital, private equity, and real estate. These accounts allow investors to manage their portfolios actively or passively.
For self contribution, one can get tax deductions of Rs. 1,50,000 under Section 80C. The tax benefits just doesn’t stop there but in Section 80CCD(1B), one get an additional deduction of Rs. 50,000 against NPS contributions. As a result, this scheme provides a tax benefit of up to Rs 2 lakh. Section 80CCD(2) of the Income Tax Act covers employers’ NPS contributions.
ULIP: It is one of the investment plans that is preferred by people who want insurance cum investment benefits. Unit Linked Insurance Plan (ULIP) is a flexible tax-saving investment option that allows you to invest in debt, equity, or both, depending on your needs and risk tolerance. As a result, one gets investment and savings benefits. Insurance provides financial protection for the entire family and a tax-free lump sum payment upon maturity. The premium payable to the to purchase a life insurance policy is eligible for a deduction of up to Rs. 1.5 lakh under Section 80C of the Income Tax Act. Hence, if you fall under the income tax slab where you taxable income is somewhat higher, this is one of the best investment plans one can choose. Furthermore, the ultimate amount paid at maturity is tax-free under Section 10(10D) of the Income Tax Act.
Public Provident Fund (PPF): It is a commonly used term among taxpayers. PPF is exempt from taxes, which is why it is so popular and one of the preferred investment plans. A PPF account can be opened at a bank or post office. Section 80C of the Income Tax Act allows a deduction of up to Rs.1.5 lakh for PPF investments made during the fiscal year. Section 10 of the Income Tax Act exempts both interest and maturity amounts from taxation. The PPF account’s lock-in period is 15 years.
Sukanya Samriddhi Yojana(SSY): It is one of the most important tax-saving investing choices. SSY, launched as part of the government’s “Beti Bachao, Beti Padhao” campaign, aims to improve the lives of female children. The plan allows taxpayers to start their investment will as little as Rs. 250 and one is required to make recurring deposits into their accounts while earning interest. The scheme matures at 21 years or when the girl child marries, whatever happens first after account opening. Sukanya Samriddhi Yojana is also eligible for deductions of up to Rs. 1.5 lakh under Section 80C of the Income Tax Act. Interest, maturity proceeds, and withdrawal amount on the SSY Account, which is compounded annually, is exempt from tax under Section 10(11A) of the Income Tax Act.
National Saving Certificate (NSC): The National Saving Certificate is a fixed-income investment scheme aimed at low- and middle-income investors. NSC is a suitable tax-saving investment option because the risk is low and the security is comparable to the provident fund. Furthermore, the investment in NSC is eligible for a tax deduction of up to Rs. 1.50 lakh under Section 80C of the Income Tax Act. The interest earned is also added back to the initial investment and is tax deductible.
Knowing these investment plans will help you calculate how much tax you will be able to save in this fiscal year. For example, instead of simply putting your money in Savings Bank Accounts, invest it in Bank Fixed Deposits or Public Provident Funds to earn higher interest rates and take advantage of deductions. Efficient tax planning can help you save money on taxes while also improving your financial management.