A lot of people don't invest in tax planning because they think it's too complicated. But there are a lot of simple things you can do to save on taxes. Things like choosing a life insurance saving scheme, buying a home, and investing in a public provident fund.
Although the wealthy Indians are often the most skilled at tax planning, those in all income brackets can improve their financial situation by doing more research into available deductions. Tax planning is one of the ways you can save taxes and increase your income.
Nowadays everyone in India is confused with all kinds of economic and taxation jargon which are often ambiguous as well. This has made people frustrated to an extent, to the point where they don't even enter into the market for fear of getting trapped into scams.
With India being among the top developing economies in the world, you must have a basic knowledge of tax saving plans. Therefore, let us take a look at some of the best tax saving schemes in India:
9 Top Tax Savings Schemes In India
1. Tax Saving Fixed Deposit
If you're looking for a good way to invest money where you can get a guaranteed return every year, then a tax-saving FD could be the right choice for you. A tax-saving FD is like a normal FD. It's a type of investment where you put in a certain amount of money, and you get a fixed return every year. There is a lock-in period, which means that you cannot withdraw your funds for a certain period. Under Section 80C, a deduction of up to Rs. 1.5 lakh is available for such investments.
2. Employee Provident Fund
Employers provide a monthly contribution towards the Employee Provident Fund (EPF) account for their employees. The contributions are a percentage of each employee’s salary, along with a component known as the dearness allowance in his/her total salary. Employers deduct an amount from the employee’s salary and contribute it towards the Employee Provident Fund. The employee and employer make regular contributions to the EPF account, with the interest rate based on the employee’s basic salary. It's mandatory for companies to regularly deduct a portion of an employee’s salary and transfer it to the EPF, which is the second-highest source of retirement income after provident fund.
3. Term Insurance
Term life insurance plans provide financial coverage to the beneficiary of the insured person for a defined period. If you die during that time, the beneficiary will receive death benefits from the insurance company. The good part about term insurance is that you can get it at a very affordable rate. The premium paid monthly is tax-exempt under Section 80C of the Income Tax Act. If you're looking for tax-free life insurance, term insurance is the way to go.
4. Senior Citizens Saving Scheme
The Senior Citizens Savings Scheme (SCSS) is set up for long-term savings opportunities for senior citizens. These opportunities provide a regular income stream with tax-saving abilities, including a potential tax deduction of up to Rs 1.5 lakh.
5. Life Insurance
Death is inevitable. If you die prematurely, it can leave your family in a financial bind. A life insurance policy helps your family financially and gives them the security of knowing the bills will be paid even if something happens to you. You must ensure that you have a sufficient amount of life insurance to provide your family with sufficient resources to carry on with their lives.
Although life insurance is not a pure form of investment for tax-saving purposes, it does manage to reduce your total taxable income and eventually the actual tax paid. The premium paid on a life insurance policy is a deductible expense for tax purposes. While investing in insurance is not the same as putting your money in a savings account or a fixed deposit, life insurance can be an effective way to invest for tax purposes.
6. National Pension Scheme
The NPS is a retirement savings plan in India for government employees and private-sector workers. You can contribute to an NPS account throughout your working life and enjoy tax-exempt status on your invested capital. You can withdraw the entire pension fund tax-free when you reach the age of 50 or above.
7. Public Provident Fund
A Public Provident Fund is a long-term savings scheme by the Central Government. It's eligible for tax deductions under section 80C of the Income Tax Act, 1961. The deduction limit for these deposits is Rs 1.5 lakh. The PPF is a scheme sponsored by the government for income earners. It's one of the most tax- efficient investment plans available to salaried people.
PPFs provide a triple benefit: they guarantee tax-free returns, you get tax-deductible deposits, and the interest earned is also exempt from tax. Even if you did not have any wealth to tax, PPFs still offer a significant savings opportunity. As an investment, PPF is one of the best retirement plans. It offers tax- free returns for 30 years.
8. Canara HSBC Oriental Bank Of Commerce - Guaranteed Savings Plan
If you are an Indian looking to save money on taxes while accumulating a financial corpus for your future goals, the guaranteed savings plan by Canara HSBC Oriental Bank Of Commerce is an ideal tax saving plan for you.
This plan offers guaranteed benefits on maturity in addition to a live cover for the entire policy term, followed by exclusive tax benefits.
9. Equity-Linked Savings Scheme (ELSS)
An ELSS is a type of mutual fund that is eligible for tax exemption under section 80C of the Income Tax Act. An ELSS has a mandatory lock-in period of 3 years during which you cannot withdraw any amount. Both ELSS and mutual funds are eligible for tax exemption under section 80C of the Income Tax Act, which allows a maximum tax exemption of Rs. 1.5 lakh.
The Final Word On Tax Saving Schemes
Saving taxes are essential to make your money grow and generate returns that hopefully would exceed the inflation rate. For businesses in India, there are numerous saving options available that could help a common man save his tax amount effectively as stated above.
