While we all want to save money and tax, filing our taxes properly is not something we all know how to do. Given that many of us lack knowledge about how taxes work and what we can do to save money and avoid unnecessary expenses, it might be a good idea to read through some of the country’s most popular tax saving plans.
The following blog post will highlight the various tax saving schemes available for your money as well as their intricacies so you can be confident in filing your taxes. Moreover, tax payment is mandatory for every citizen of India. It becomes even more important if you are earning a good amount of income. If the level of taxation seems to be increasing annually, it shows that the government is interested in collecting more money from the citizens.
As the tax slab increases over the years, many have become numb to paying their taxes regularly. However, this attitude should not be adopted since there are various ways through which you can save your taxes. The government has plans for individuals as well as companies so both can take advantage of these tax-saving schemes.
ELSS (Equity-Linked Saving Scheme)
The equity-linked saving scheme is similar to diversified mutual funds because you can invest up to 1.5 lakh rupees with the same tax benefit as traditional saving schemes, but you also lock in your money for 3 years.
The interest rate on these funds varies from 15% to 18%. However, the returns are not fixed in an equity-linked saving scheme. Investors can opt for dividend or growth mode according to their suitability or requirement.
IAs per a new rule from April 1st 2018, dividends from an equity-linked saving scheme are liable for the taxation of 10%. To minimize the risk and gain long-term capital returns, the investors can diversify the investment based on industry exposure and market capitalization.
Unit Linked Insurance Plan (ULIP)
A ULIP is another kind of tax-saving investment, which offers tax exemptions to investors. Unlike before, the new age ULIPs launched by insurance companies come with zero premium allocation charges and zero administration charges, which ensure better returns for investors.
Additionally, with the combined benefits of insurance and investment, one can gain the benefit on the tax deductions of income on the premium paid towards the policy under section 80C of the Income Tax Act of India.
Investors can choose from a wide range of funds to invest in, as well as make free switches between funds as often as once every month. However, returns on a ULIP depend entirely on the market performance of the fund.
Senior Citizen Saving Scheme
The Senior Citizen Savings Scheme (SCSS) is a retirement plan designed to help retirees save money safely, without the threat of market volatility. An individual who is at least 60 years old can open an account under this plan.
A senior citizen can invest a minimum of Rs.1,000 and a maximum of Rs.15 lakh in the scheme. It is a safe investment option with a flexible cost structure. You can’t take out your investment for five years. In the meantime, they’ll pay you interest each quarter.
The deduction on investments made through 80C of the Income Tax Act is applicable for senior citizen saving schemes. This investment offers the highest interest rate of 8.7% per annum and has a guaranteed return to investors.
National Savings Certificate
This is a tax-free certificate created by the government to encourage people to save. This plan has been specifically designed to appeal to both low and high-income earners. You can open an account at any post office to enrol in the national savings certificate.
Like other bank products, the NSC is also considered to be low-risk, which means your money is safe. It also offers a guaranteed return on investment for its holders. In terms of their characteristics, NSCs are similar to bank fixed deposits and PPF accounts.
Investors can claim a tax deduction on NSC investments in the second year of investment and can claim the interest earned on the previously invested amount also. This is because the interest earned is added to the investment and is compounded annually.
Rebates Under 87A
The income tax rebate is allotted to people who have a salary below the pre-defined limit. This is because the government wants to bring down the burden of tax for middle-class earners. Section 87a of the Indian Income Tax Act, 1961, has relief for certain taxpayers under the 10% tax bracket.
This relief is given to taxpayers whose annual net income is less than 5 lakhs. You can deduct a maximum of Rs.2000 from your taxable income if your annual income is less than 5 lakh rupees. The tax rebate is available only to people who report their income as individuals and not the people who report their income as a Hindu Undivided Family, BOI/ AOP, Company, or Firm.
Moreover, the total refund amount should not exceed the amount of income tax calculated and paid before the deduction on the total income of the person with which he/she will be charged. Both male and female individuals can apply for a tax rebate under section 87A.
In this article, we’ve discussed various ways to save tax in India. Though these can be a little complicated at first, once you get the hang of it they should be relatively easy to keep track of. We hope this guide has been helpful and we look forward to helping you with your specific tax needs.
There are various tax saving plans in India that one can take advantage of, and the most common way is to start investing early. If you’re looking for an easy way to invest your money, look into using a savings plan because they require only a small investment up front, but allow you to enjoy several tax benefits.