Effective Tax Saving Ideas

When the term income tax comes in our mind, we start looking for ideas to save the tax on our hard earned money. Indian government imposes a tax on the income that we earn through various sources in a financial year. A limited amount of money from our earning is tax free and rest of the amount is taxable. Every year, Indian government release a tax slab which helps us to calculate our taxable income.

We need to pay a small amount of money from our taxable income. This income may range as per the tax slab issued by the government. However, we can make some investment and get benefit on the taxable amount. As per the government rules, if me make an investment of Rs 1 Lac in a financial year then we also get tax benefit on this investment completely. Government has provided us various investment schemes. We can select one or many schemes and make our investment under that scheme. Some schemes which helps you to invest and get tax benefit are given below:

  1. Public Provident Fund (PPF) – PPF is the long term investment scheme widely used in the India. PPF account can be opened in a post office, state bank of india, and some other dedicated banks. PPF account provides us a compounded interest of 8.6% annually on the investment. With a maturity period of 15 years, the amount received on maturity is completely tax free in PPF accounts. An individual can have only one PPF account at a time under his name. A minimum of Rs 500 and maximum of Rs 1 Lac can be invested in a PPF account during a financial year.
  2. Equity Linked Saving Scheme (ELSS) – ELSS are tax saving mutual funds which helps us to invest money in the market. This is a safe mode of investment in the market as the money that we invest in mutual funds are invested in multiple shares. However, when we directly invest money on a share in the share market then chances to get profit or loss totally depends on the share price on a particular day. But in case of mutual funds, our money is invested in various shares which increases chances to get profit because all the share’s prices in which mutual fund’s money is invested will not go down on a particular day. Lock-in period in mutual funds are generally three years but we can continue our  investment even after lock-in period gets over. Return on the investment totally depends on the market situation. We can do a minimum investment of Rs. 500 and there is no limit for maximum investment in the mutual funds. But, we get tax benefit only upto Rs. 1 Lac invested in the mutual funds.
  3. National Saving Certificate (NSC) – NSC is also a saving investment scheme generally used in India. NSC can be purchased at post offices or banks. With a maturity period of 5 to 10 years, NSC gives a return of 8% compounded half yearly. A minimum of Rs 100 and there is no upper limit of money one can invest in NSC. Income earned through interest on NSC’s investment are taxable.
  4. Employees Provident Fund (EPF) – This saving scheme is compulsory for all the salaried individuals. If your are a salaried person, you need to contribute 12% of your basic salary in EPF. This contribution is deducted automatically every month from your salary. Your employer contribute another 12% of the basic salary in your EPF account. An average return of 9.5% is given on such investments. However, you can withdraw the entire amount after leaving the job with an employer or after the retirement. Partial withdrawal can also be done for home, medical or marriage related expenses. Return received from this investment is completely tax free. 
  5. Unit Linked Insurance Plans (ULIP) – It is a type of life insurance where a part of your premium is used to provide you insurance, the remaining amount is invested in the stock market. With a lock-in period of 5 years, returns on ULIP plan totally depends on the market condition. A policyholder can apply for premature exit without any penalty.
  6. Tax Saving Fixed Deposits – Money invested in fixed deposit is another investment scheme. With lock-in period of 5 years, a return of 9-9.5% annually is earned on such investments. Tax benefit is applicable only upto a maximum investment of 1 Lac under this scheme. Once invested, you cannot withdraw or exit from this scheme before lock-in period gets over. You can take this scheme from various banks or post offices. The interest earned on the maturity under this investment is taxable. 
  7. Life Insurance – This mode of saving is widely used in the India. Money invested in life insurance is completely tax free upto Rs 1 Lac. An individual can take such insurance policies under his name or for his/her spouse. Maturity period depends on the policy term selected by the investor. An annual return of 6-7% is earned on such investments.
  8. Health Insurance – The premium that you pay for your health insurance is completely tax free upto Rs 15000. You can get tax benefit of same amount for the premium that you pay for your parent’s health insurance. If your parents falls under senior citizen category, this exemption is exceeds upto Rs 20000. In this way, you can get a total tax benefit of Rs 30000-35000 under health insurance. This tax benefit comes under section 80D which is apart from the other modes of saving which falls under section 80C.

 These are the various options available to save tax on your taxable amount.



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