Tax saving ideas: Use these 6 financial, banking instruments to save taxes
It doesn't have to be a hard chore for many people to save money on taxes. You may lower your tax liability and create a safe financial future with plenty of savings by making thoughtful investments in tax-saving products.Under Section 80C and other provisions of the Income Tax Act, there are a number of ways for taxpayers to reduce their tax obligations. These investments provide you the chance to build wealth in addition to lowering your taxed income.
How to switch from new tax regime to old tax regime for FY23-24
What is Section 80C?
According to the Indian Bank website, “Section 80C is one of the section in Income Tax Act, 1961 which allows taxpayers to claim deductions on their taxable income by investing in deposit schemes and expenditures. As of the current regulations, you can claim deductions of up to Rs. 1.5 lakh in a fiscal year under this provision. It’s important to note that the Rs. 1.5 lakh limit applies cumulatively to all the eligible investments and expenses under Section 80C.” This tax benefit is only available to those who select the old tax regime; those who opt for the new tax regime cannot avail this tax benefit. .live_stock{left:17px;padding:1px 3px 1px 5px;font-size:10px;font-weight:500;line-height:18px;} #sr_widget .sr_desc{margin:0 auto 0;} #sr_widget .sr_desc{color: #024d99;}Investors looking for twin engines of quality and growth.
With an emphasis on banking products, below are some financial instruments which can be used as investment and tax saving purpose, according to the Indian Bank website.
1 Tax Saving Fixed Deposits (FDs)
One easy approach to save taxes is through bank fixed deposits. They have different tenures and interest rates, and they provide tax deductions under Section 80C. These are a well-liked option for anyone seeking a secure and certain return on their money.Lock-in Period: Tax-saving FDs come with a lock-in period of 5 years, which means your money remains invested for this duration.
Tax Benefit: Investments in tax-saving FDs are eligible for deductions under Section 80C, up to a maximum limit of Rs. 1.5 lakh in a financial year.
Interest Taxation: The interest earned on tax-saving FDs is taxable as per your income tax slab.
2 Public Provident Fund (PPF)
PPF is a small savings system that is funded by the Government of India. It is a long-term savings and investment strategy. One of the safest investing alternatives in India is the government-backed savings plan.
Longer lock-in period : In contrast to many other tax-saving investments, this one has a 15-year term. It also provides the option of partial withdrawals from the seventh year onwards, allowing individuals to access a portion of their savings as needed.
Tax benefit: Offers opportunity to claim tax deductions under Section 80C.
Interest taxation: The interest earned on PPF
3 National Savings Certificate (NSC)
NSC is a government-sponsored savings initiative offered to Indian people. It is a fixed-income investment choice since it provides a fixed rate of interest determined by the government. NSC is eligible for tax deductions under Section 80C of the Income Tax Act of 1961. Thus, it is an appropriate alternative for investors seeking safety, consistent returns, and tax benefits over a 5-year investment horizon.
Lock-in Period: It features a 5-year lock-in term and offers a guaranteed return.
Tax Benefit: NSC is eligible for tax deductions under Section 80C of the Income Tax Act of 1961.
Interest Taxation: The interest income accrued from NSC is subject to taxation based on the investor’s tax bracket. However, the interest earned on NSC is not paid to the investor every financial year.
4 Senior Citizens’ Saving Scheme (SCSS)
Designed for senior citizens aged 60 years and above, this scheme provides tax benefits under Section 80C. Here’s what you should know:
Lock-in Period: The SCSS has a lock-in period of 5 years, which can be extended for an additional 3 years after maturity.
Tax Benefit: Investments in the SCSS qualify for deductions under Section 80C, subject to the overall limit of Rs. 1.5 lakh.
Interest Taxation: Interest income from the SCSS is fully taxable, if it exceeds Rs 50,000 in a fiscal year.
5 Sukanya Samriddhi Yojana (SSY)
Sukanya Samriddhi Yojana is an amazing tax-saving investment initiative in India that is particularly meant to help the girl child.
Lock in Period: Scheme comes with a lock-in period, typically until the girl child reaches 21 years of age or gets married, whichever is earlier. Partial withdrawal can be made for educational purposes after the girl child attains the age of 18 years or after passing 10th standard, whichever is earlier.
Tax Deductions: Under Section 80C of the Income Tax Act, contributions made to the SSY account are eligible for tax deductions.
Tax-Free Returns: The interest earned on the SSY account and the maturity amount are both exempt from income tax.
6 Loans
Taking certain types of loans can provide tax benefits under specific sections of the Income Tax Act such as home loan and education loans.
Home Loan
Interest paid on a home loan is eligible for deductions under Section 24(b) of the Income Tax Act up to a maximum limit of Rs. 2 lakh (subject to conditions) and the principal amount repaid on a home loan is eligible for deductions under Section 80C up to a maximum limit of Rs. 1.5 Lakh per financial year.
Education Loan
Interest on education loans for higher education is fully deductible under Section 80E of the Income Tax Act. This deduction has no maximum limit and can be claimed for up to eight years or until the interest is entirely returned, whichever occurs first.
Both these deductions on home loan and education loan are available only to those who opt for the old tax regime.
This story originally appeared on: India Times - Author:Faqs of Insurances
