What are tax-saving methods in India?

What are tax-saving methods in India?

As we near the end of the fiscal year 2021–22, tax-saving investments are the flavour of the season. Tax planning is one of those activities that most of us put off until the end of the fiscal year. Though there are clever methods to avoid the tax trap and preserve your hard-earned cash, cautious preparation is the order of the day.

In India, tax planning is the process that should begin in the first quarter of the fiscal year to allow time to develop a sensible tax saving approach. There’s a better likelihood that each choice will be thoroughly evaluated before being invested in by getting started early.

Before we get into the top tax-saving investment products, let’s have a look at Provision 80C of the Income Tax Act of 1961, which is the most profitable section of the Act.

The most apparent incentive to invest in the 80C Investments is to save money on taxes. By depositing an equivalent amount in an ELSS or other qualifying 80C plan, you can reduce up to Rs One hundred fifty thousand from your taxable amount and save up to Rs. 46,800 in taxes.

Public Provident Fund For its consistent and secure earnings, the Public Provident Fund (PPF) is a popular investment option. Every 3 months, the PPF interest rate is adjusted. It is currently at 7.1 percent per year. You may put money into a PPF for 15 years and then extend it for another five years.

You can engage in a PPF to obtain tax-free income if you are seeking products that are not susceptible to market hazards.

PPF contributions are eligible for tax benefits in the form of deductions under Section 80C. Furthermore, it is classified as Exempt-Exempt-Exempt (EEE). The amount deposited and the cumulative amount and interest earned at the time of withdrawal are all tax-free.

Employee Provident Fund It counts as a Voluntary Provident Fund if you donate more than the mandatory 12 percent to EPF (VPF). Interest received on EPF contributions of more than Rs. 5 lakh per year would be taxed as of April 1, 2021, depending on your income tax bracket. In reality, the exemption ceiling has been increased from Rs 2.5 lakh, which was declared in Budget 2021.

Nevertheless, after deducting the 30% tax on VPF donations, back-of-the-envelope calculations reveal that you can potentially earn up to 5.95 percent interest. Given that FD

returns have been continuously declining year after year, this is a reasonable interest rate.

Healthcare Insurance An increase in chronic health disorders has been attributed to a sedentary lifestyle, long work hours, bad eating habits, and other environmental variables. Furthermore, with the rising expenses of healthcare, health insurance has become a critical investment.

It protects you and your family against health problems that might drain your bank account, as well as provides tax benefits.

Section 80D allows you to claim deductions for insurance premiums. Health insurance is one of the tax-advantaged investments that may help you save money in a variety of ways.

Gratuity It is tax-free when given to an employee upon resignation, superannuation, retirement, dismemberment, or death). The maximum amount of money that can be exempted is Rs. 20,00,000. To be qualified for the payment, you must have performed a minimum of 5 years of employment.

ELSS (Equity Linked Savings Scheme) According to financial experts, ELSS mutual funds are one of the most popular tax-saving tools in India for two reasons:

1. They are equity-based, and

2. They have the shortest lock-in period. Because they are market-linked, ELSS carry a high-risk profile, but they have the potential to provide higher returns.

Another major factor that makes ELSS the most popular investment option in India is that it allows investors to contribute in small amounts over time through a systematic investment plan (SIP) rather than paying a lump sum.

National Pension System (NPS) Section 80C allows you to claim a tax advantage up to Rs 1.5 lakh on every donation you make to your NPS account. Your payments to your NPS account are eligible for an extra tax deduction of up to Rs 50k under section 80CCD(1B). Investing in NPS allows you to invest in both equities and bonds at the same time, allowing you to accumulate a sizable retirement fund.

Conclusion

We have given you some popular tax saving methods in this blog. If you could implement our advice, you would be able to prepare your income taxes properly. India’s Income Tax Law is substantial within itself.

It is advised that you engage a financial planner online, such as a lawyer or a qualified Chartered Accountant, for the most effective management of your tax compliances. We wish you the best of luck with your income tax preparations.