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Learn How To Save Tax On Your Salary

by Louise W. Rice

Tax saving is not only the biggest wealth creation tool for middle-class Indian citizens but also a great source of income during retirement. Anyone having basic knowledge about the financial market is aware of the importance of saving tax with your income. However, most of us don’t know what are the several different ways available to save tax in India. That’s why this article discusses some of the most prominent tax saving schemes available in India:

1. ELSS Funds

Abbreviated as ELSS, the Equity Linked Savings Schemes are mutual fund investments that majorly invest your capital in equity. These funds usually have a lock-in period of three years, which is certainly much lower as compared to other investment options

When you invest your capital in ELSS funds, you can enjoy tax benefits of up to Rs. 1.5 lakhs as per section 80C of the Income Tax Act of India. Whether you invest through SIP or lump-sum, both of these options can be availed for tax deductions.

However, as the investment is aligned more towards equity-linked instruments, there’s always a significant risk involved. In addition to tax benefits, you can also enjoy returns on your investments that provide you with the benefit of capital appreciation.

2. Life Insurance Plan

A life insurance policy is one of the most common types of investment options available in India. With a life insurance plan, you can make sure that your family is protected financially in the event of your unfortunate demise.

According to section 80C of the Income Tax Act 1961, you can enjoy tax deductions on the premiums paid towards a life insurance plan with a limit of up to Rs. 1.5 Lakhs. Additionally, even the maturity benefits you receive are exempted from taxation as per Section 10(10D). Likewise, the best tax saving plan is being offered by a plethora of companies to choose from.

If your premiums are not more than 10% of the assured sum, then you won’t have to pay any taxes on it. Moreover, in the event of your unprecedented death, the assured sum to be received by your nominee is also eligible for tax exemption.

3. Sukanya Samridhi Yojana 

Launched in 2015 by the Government of India, the Sukanya Samridhi Yojana is becoming a popular tax-saving scheme in India. It’s a part of the “Beti Bachao Beti Padhao” Campaign and allows a person to make fixed-income investments by making regular deposits and earning interest on the amount.

If you invest in this scheme, you can enjoy tax deductions under section 80C of the Income Tax Act. The rate of interest provided in this scheme is determined by the Government of India quarterly, which is paid to the policyholder on the maturity of the plan.

Keep in mind that the scheme features a lock-in period of 21 years and involves a minimum deposit of Rs. 250 per year. If you fail to pay the required amount, the scheme will collapse and you’ll have to pay an additional fee to reinitiate your account.

4. Tax Saving Fixed Deposit

Fixed deposits are not only the safest savings plan but also the most reliable tax-saving plan available in India. As compared to equity investments, a fixed deposit is much safer in terms of returns and risk involved in the investment.

The interest rate of fixed deposits is determined by banks, which makes it varied among different financial bodies. Moreover, the investments made in these plans are eligible for tax deductions under section 80C of the Income Tax Act.

There’s also a minimum lock-in period of five years and if you’re a senior citizen, you can enjoy a higher interest rate than usual. For joint accounts, only the primary holder can avail of the tax benefits available with the plan.

5. Health Insurance Premiums

If you pay premiums for health insurance that covers either you, your spouse, or even children, you can claim tax benefits of up to Rs. 25,000. This is also applicable for any contributions made towards central health government schemes.

In addition to tax benefits, medical insurance also takes care of your expenses incurred due to medical emergencies. Furthermore, you can also enjoy additional deductions of Rs. 25,000 if you purchase health insurance for your parents.

Additionally, if the individual and their parents are both aged above 60 years, the maximum tax deduction you can avail of is Rs. 1,00,000. These features make health insurance one of the most beneficial tax-saving plans available in India.

6. Repayment of Education Loan

As per the norms of the Income Tax Act of India, you can also enjoy tax benefits on repayment of loans under section 80E. When you avail of an education loan, the interest you pay for the repayment of your loan is eligible for a tax deduction. Keep in mind that you can only avail of tax benefits if you take the loan from a financial institution and not an unregulated source.

7. Unit Linked Insurance Plans

A Unit Linked Insurance Plan provides you with the benefit of both life insurance and investments in market-linked instruments. There are several amazing ULIPs available in the market such as the Canara HSBC OBC Invest 4G plan that provide you with a myriad of benefits in addition to tax benefits.

The premiums you pay towards the policy are eligible for tax benefits under section 80C of the Income Tax Act. Moreover, the death benefit is also exempted from taxes as per section 10(10D) of the act.

The Takeaway

If you are an individual or a business owner in India, it is very important to avail of all the tax-saving schemes available. These can help you save on taxes and use this money for your business expansion plans instead.

Perhaps, these savings could also mean that you can spend more on other areas of your life, like buying that new car or booking that vacation abroad. After reading this article, you should know some of the tax-saving options available in India.

We hope you will use these suggestions to help you save more money on your taxes and keep more of your hard-earned income.

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