17 Most Effective Tax Saving Schemes for Saving Income Tax

If you want to save Income Tax then here are 17 most effective Tax Saving Schemes for Saving and reducing Income Tax in India

17 Most Effective Tax Saving Schemes for Saving Income Tax
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Each of us is troubled by the topic of how to save tax or, more accurately, how to organize your investments. Tax preparation is important, but so are tax-saving strategies. With India's top tax saving plans, you may reduce your tax burden while generating income. The beginning of the fiscal year is the best time to make plans for investments that will save taxes. With year-round returns on your tax-saving investment, this will guarantee that you don't pay more in taxes and save taxes in India.

Why do so few of us in India save taxes when we all can try to? The problem can be a lack of information or difficulties making the optimal decision for your financial plans. To assist you in comparison and decision-making, we have included a list of the top tax-saving investment options available in India in this post.

You must make sure that your goal is more than just tax savings while figuring out how to save money on taxes in India. The objective must be to save on income taxes while also making the best possible investment choice. In this post, we've compiled a list of the top tax-saving choices

1. Unit Linked Insurance Plan (ULIP)

In India, one of the most significant investment programmes is the ULIP Life Insurance Plan. In the event of one's passing, it makes sure that their family would be financially secure. The taxpayer can profit from the income tax act benefit by buying a life insurance policy.

The premium for a life insurance policy can be written off up to Rs.1.5 lakh under section 80C of the Income Tax Act of 1961. Furthermore, income from the policy's maturity is tax-free according to section 10(10D). If the premium is less than 10% of the amount assured, the income is tax-free. If the insurance beneficiary's nominee receives the money, the nominee will still be free from paying taxes on it.

The taxpayer may deduct 20% of their tax on the premium they paid under section 80C of the Internal Revenue Code of 1961. The subsequent circumstances also hold true:

  • A life insurance coverage is bought by the taxpayer on or before March 31, 2012
  • The policy is in his name, the name of their spouse, or the name of their minor child.

If the life insurance policy is bought after 1 April 2012, the tax deduction for the premium paid is up to 10% of the amount assured.

2. ELSS Mutual Funds

Equity Linked Savings Schemes are mutual fund investment plans that place a significant portion of their equity in these investments. The fund also has a 3-year statutory lock-in period, the shortest of all the investment options.

Under section 80C of the income tax act, investments in ELSS funds are eligible for a deduction of up to Rs. 1.5 lakh. The amount deposited via a systematic investment plan (SIP) as well as a lump sum investment are both eligible for the deduction. There is always some risk associated with ELSS funds because they invest a substantial amount in equities.

ELSS funds offer tax savings in addition to financial appreciation. As a result, investors find it to be one of the most effective tax-saving strategies.

Generally speaking, taxpayers who are ready to take some risk and want to claim tax deductions of up to Rs 1.5 lakh under Section 80C rules may think about investing in ELSS. These mutual funds focus on equities and allocate at least 60% of their portfolio to equity and equity-linked securities. Because of this, it's essential to hold onto the funds for a long time in order to benefit from the returns.

3. Public Provident Fund (PPF)

Taxpayers have always regarded the Public Provident Fund as one of their favorite tax-saving strategies. The fact that PPF qualifies for exempt-exempt-exempt tax status is one of the main causes of this popularity. Your PPF accounts can be opened at a bank or post office.

Section 80C of the Income Tax Act allows taxpayers to deduct the amount of investments they made during the fiscal year. The highest deduction able amount is Rs.1.5 lakhs. The interest and maturity amount of PPF are tax-free because it falls within the exempt category.

PPF accounts have a 15-year lock-in period and give investors the following choices when the account reaches maturity:

  • Withdrawal of proceeds from the account
  • Continue for another 5 years

4. Sukanya Samridhi Yojana (SSY)

One of the most significant tax-saving programmes is now the Sukanya Samriddhi Yojana. The Indian government introduced it in 2015 as a component of the Beti Bachao Beti Padhao campaign. It significantly affected the entire populace. In accordance with the plan, a taxpayer may invest regular deposits and simultaneously receive interest through a fixed income investment. Sukanya Samriddhi Yojana investment is also a deductible expense under section 80C of the income tax code.

The interest rate on the plan is set by the Indian government on a quarterly basis and is due at maturity. The plan has a 21-year lock-in period and will mature when that time has passed. For 15 years, a minimum deposit of Rs. 250 must be made each year. The account will be disconnected if the required minimum payment is not made within a year. You must pay the original Rs. 250 deposit plus a penalty of Rs.50 to have the account reactivated.

In order to open a Sukanya Samriddhi account, below is the eligibility criteria for this tax saving option:

  • This programme only provides benefits to girl children.
  • No girl child may be older than ten years old. A one-year grace period is offered, allowing the parent to invest before the girl kid turns 10 years old.
  • The investor must provide evidence of the daughter's age.

5. National Savings Certificate

A national savings certificate is a government-sponsored fixed income investment programme that targets small and middle-income investors with the promise of attractive returns. As safe as the Provident Fund, it is regarded as a low-risk investment. The investors can make investments based on their investing preferences and income profile.

Investment in NSC is eligible for a deduction of up to Rs.1.50 lakh under section 80C of the income tax act. In addition to offering tax exemption, it also fully protects the investor's capital and guarantees interest. The following are some of the NSC's tax-saving features:

  • Interest at a fixed rate of 6.8% each year.
  • Section 80C allows you to claim a tax benefit up to Rs.1.5L.
  • You can put down as little as 1 rupee (or multiples of Rs.100). You are free to increase your investment as needed.
  • At maturity, the investor will get the full maturity value, which will then be subject to taxation in the hands of the taxpayer.
  • There isn't a way to leave early. For bank or NBFC loans, you may utilise the same as collateral security

6. Tax-Savings Fixed Deposit

One of the most secure methods of tax savings is fixed deposits. In terms of risk and returns, it is less risky than equity investments. The interest rates are set by the banks and are influenced by several factors. Some characteristics of a tax-saving fixed deposit are listed below:

  • Investments in tax-saving fixed deposits are deductible from taxable income under section 80C.
  • a minimum 5-year lock-in term
  • Seniors are eligible for higher interest rates on their investments.
  • In a joint account, the principal account holder may benefit from a tax deduction when determining their taxable income.
  • Fixed-income tax-saving investments do not permit early withdrawal. Investors do have the option of making an early withdrawal when the five-year lock-in period expires, though. Premature withdrawal rules and regulations differ from bank to bank.

7. Senior Citizen Savings Scheme

An income tax saving plan called a Senior Citizen Savings Scheme is accessible to senior citizens who live in India. The programme offers one of the highest rates among the numerous savings plans and is accessible for investment through banks and post offices.

Depositors can invest from as little as Rs.1000 and in multiples of that amount. If the investment is less than Rs.1 lakh, the scheme also offers the option of cash investments. The contributions paid to the programme mature after five years. The depositors can choose to prolong the maturity time by an additional three years.

Investments in the Senior Citizen Savings Scheme are eligible for a deduction from taxable income of up to Rs.1.5 lakhs under section 80C. If the interest is greater than Rs.50,000, it is completely taxable and eligible for a tax deduction. A Senior Citizens Savings Scheme account's deposits are compounded and paid out yearly.

8. School Tuition Fees

Section 80C of the Income Tax Act of 1961 allows for a deduction for the cost of children's school expenses. Along with other investments like PPF, NSC, ELSS, etc., this tax-saving alternative is accessible under section 80C. Any registered university, college, school, or other educational institution that charges tuition is eligible for a deduction of up to Rs.1.5 lakh.

Additionally, only tuition costs are eligible for a deduction under the income tax laws. Even if paid to such an institution, any other cost, such as a contribution or development fee, is ineligible for the deduction.

According to the income tax statute, both parents are eligible to claim a deduction up to the full amount of what they each paid. Therefore, if the total sum paid by the parents is Rs1 lakh, of which the father has paid Rs40,000 and the mother has paid Rs60,000, both may be eligible to receive the money according to the individual payments they made.

9. National Pension Scheme (NPS)

The National Pension Scheme, also known as NPS, is a well-liked investing option that reduces income taxes. It is a tax-saving choice open to both public and private sector workers. It enables the depositor to generate a regular monthly income as well as a corpus for retirement. The depositor's money is invested in a variety of plans, including stock markets.

NPS accounts come in two different varieties: Tier-1 and Tier-2. A tier-1 account is locked in until the subscriber turns 60 years old. The donations provided by the subscriber to tier-1 are tax-deductible under section 80CCD(1) and 80CCD(1B) (1B). Since Tier-2 accounts are voluntary, subscribers may take their money out whenever they choose. Contributions made to tier-2 accounts, however, are not tax deductible.

According to section 80CCD, a person may invest in NPS and claim a deduction of up to Rs.1.5 lakh. An additional deduction of up to Rs.50,000 was provided for NPS payments made by individual taxpayers under a new sub-section 1B that was also implemented.

10. Health Insurance Premium under section 80D

For the following contributions, you may claim a tax advantage of up to Rs.25,000:

  • Premium paid to keep in force health insurance covering self, spouse, or dependent children.
  • Any contribution to Central Health Government Schemes.

In addition to the aforementioned, a further deduction for the parents' insurance is allowed, up to a maximum of Rs.25,000 for those under 60 and Rs.50,000 for those over 60. The maximum deduction permitted by this clause shall be Rs.1,000,000 if the person and the parent are both above 60.

11. Repayment of an Education Loan

A tax benefit is offered by the income tax act upon loan repayment in the form of a tax deduction under section 80E of the act. You must keep in mind that the loan borrower has access to this tax-saving option. Once an educational loan has been taken out, the interest paid on the loan is eligible for a tax deduction for up to eight years, or until the interest is paid off, whichever comes first.

For instance, the tax deduction would only be allowed for the first five years of the taxpayer's repayment of their student loan. The taxpayers should take advantage of this benefit because it can be claimed under section 80E for a maximum of 8 years. Borrowers should be aware that their payback period may be longer than 8 years, but in that event, they will no longer be eligible for the tax deduction under Section 80E.

12. Rent paid and no HRA received

Section 80GG was added in order to give the taxpayer benefits even when HRA is not received. According to this clause, a taxpayer may deduct the cost of rent even if they do not receive HRA. The following requirements must be met for this:

  • The person either works for themselves or is paid.
  • At any point throughout the year for which a deduction is being claimed under section 80GG, HRA has not been received.
  • No residential accommodation at the location where you are presently residing is held by you, your spouse, or the HUF of which you are a member.

You must submit form 10BA for the payment of rent if you want to claim a deduction under section 80GG. Under this clause, the lesser of the following will be regarded as a deduction:

  • Rs. 5,000 per month.
  • 25% of the total Income (excluding long-term capital gains, short-term capital gains under section 111A and Income under Section 115A or115D and deductions under 80C to 80U.
  • Actual rent less 10%of Income

13. Interest paid on Home Loan

You must meet the following requirements in order to deduct the interest portion of a mortgage from your taxes:

  • For the purchase or building of a house, a home loan is required.
  • Within five years after the end of the fiscal year for which the loan was obtained, the house must be built.
  • Section 24 allows for a deduction of up to Rs.2 lakh for the interest paid as part of the loan. In the case of a self-occupied property, this is relevant. There is no maximum amount that can be claimed for interest on a rented property.

Read : you can also read about HRA Calculator.

14. Savings Bank Account Interest

In accordance with the 1961 Income Tax Act, interest from savings bank accounts is eligible for deductions. Hindu undivided families and individuals are both eligible to claim the tax deduction under section 80TTA for interest earned. Taxpayers who are not elderly citizens are eligible for this deduction. The elderly citizen exception under section 80TTB is available.

Section 80TTA allows for a maximum deduction of Rs.10,000. The assessee's total interest earnings from his or her savings bank account are subject to a maximum of Rs.10,000. Any interest that exceeds Rs.10,000 is subject to taxation as "Income from Other Sources". The tax rate will be in accordance with the relevant tax slab rate. For instance, Amit received Rs.15,000 in interest total from his savings bank account. The entire exemption permitted under section 80TTA in this situation is Rs.10,000, and the remaining Rs.5,000 will be subject to taxation as "income from other sources."

15. Medical Expenses towards Disabled Dependent

A taxpayer may claim a deduction under the terms of section 80DD if they are caring for dependents who are disabled. This tax advantage will assist the individual who is caring for a dependent disabled family member in lowering their tax obligation.

Section 80DD states that disabled dependents can be a spouse, child, parent, or sibling (brother or sister). A crippled dependent may be a part of the Hindu Undivided Family (HUF) in the case of HUF. A deduction under section 80U should not have been taken in order to claim tax benefits under section 80DD. A few of the disabilities are listed below:

  • Blindness
  • Low vision
  • Hearing impairment
  • Mental illness
  • Autism

16. Treatment of Specified Diseases u/s 80DDB

If a taxpayer has contracted a disease like cancer or a neurological ailment like dementia, motor neuron disease, parkinson's disease, etc., they are eligible for a deduction under section 80DDB. All of these diseases have high treatment costs, and section 80DDB allows for a deduction for those costs.

For the medical care of a dependent who is afflicted with a specific ailment, individuals or HUF may deduct expenses under section 80DDB. The maximum deduction is £40,000, whichever is higher (whichever is lower). In the case of senior citizen taxpayers or dependents, this cap is increased to 1 lakh.

17. Donations made to Charitable Institutions

In relation to the amount paid by the taxpayer to an authorised charitable organization, Section 80G allows for a tax deduction. Donations to these groups should be sent via check or online transfer. Cash transfers worth more than Rs2,000 are not deductible under this provision. To make a tax deduction claim, it is crucial to obtain a stamped receipt from the organization where the donation was made.

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