In our daily lives, we pay tax on everything. From basic necessities like food, clothing, shelter to electricity, internet, movie tickets etc. While we cannot avoid paying taxes, there are various ways through which we can minimise the amount of tax we pay. In this article, we will discuss the 10 best tax saving options in India.
In India, taxes are classified as:
- Direct taxes like income tax, property tax, tax on assets etc. &
- Indirect taxes like GST, VAT, excise tax etc.
While we cannot control or avoid indirect taxes, by timely and prudent planning, we can surely minimise our direct tax outflow. Contrary to the popular norm, the best time to invest in tax saving options is at the beginning of the financial year. By doing so, your investments get the complete benefit of power of compounding.
Let us now understand how you can utilise these 10 tax saving options to save tax.
Public Provident Fund (PPF)
PPF is a great tax saving option as it qualifies for deduction upto Rs 1.5 Lakhs per annum under section 80C of the Income tax act. Additionally, it has provided decent returns in the 7% – 9% range. Since PPF is backed by the government, it is one of the safest investment cum tax saving options in India.
Apart from this, PPF offers E-E-E benefit as the principal amount, interest income and maturity income are all exempt from taxes. The only drawback is that PPF has a tenure of 15 years, so it is not suitable for the short term.
National Pension Scheme (NPS)
NPS is a government sponsored pension plan which is also tax efficient. Individuals can claim additional Rs 50,000 tax deduction under section 80CCD (1B) in addition to the Rs 1.5 Lakhs 80C deduction. NPS was introduced with an aim to allow non-government sector individuals to save and plan for their own retirement.
Premium Paid for Life Insurance policy
You can claim a deduction for the premium paid for your life insurance policy. Premium paid for a life insurance policy can be claimed under the Rs 1.5 Lakh ceiling in section 80C. But for availing this benefit the insurance cover must be 10 times of your premium amount.
National Savings Certificate (NSC)
National Savings Certificate is another tax saving option backed by the government and is suitable for risk-averse individuals. While there is no maximum limit for investment, the maximum deduction that can be claimed is Rs 1.5 Lakh under section 80C. NSC has a lock-in period of 5 years and can be a good short term tax saving option for risk averse individuals.
Equity Linked Savings Scheme (ELSS)
ELSS funds are equity oriented mutual funds with a lock-in period of 3 years. ELSS funds have the shortest lock-in period among all other tax saving options. Investment in ELSS funds upto Rs 1.5 lakhs is eligible for tax deductions under section 80C of Income Tax Act.
Home loan’s Principal Amount
The principal repayment of your home loan is eligible for deduction upto Rs 1.5 lakhs under section 80C of Income Tax Act. Additionally, the interest paid on your home loan upto Rs 2 Lakhs can also be claimed under section 24B of Income Tax Act.
5-Year Tax Saving FDs
A 5-year tax saving fixed deposit is one of the most popular tax saving options for senior citizens and retirees. It also qualifies for deduction upto Rs 1.5 Lakhs under section 80C. However, TDS is applicable on the interest earned. You can submit a 15G form to avoid TDS.
Sukanya Samriddhi Account
Sukanya samriddhi account is a government-backed initiative to encourage parents of a girl child to invest for her future. You can claim deduction up to Rs 1.5 Lakhs under section 80C of the Income Tax Act. Apart from the principal invested, even the interest income earned is exempt from tax.
Children’s Tuition Fees
For salaried individuals, tuition fees up to 2 children, is eligible for tax deduction under the Rs 1.5 Lakh ceiling of section 80C.
Interest Income on savings account
Income earned on savings account is exempt from tax upto Rs 10,000 for individuals below 60 years of age. For senior citizens, interest income upto Rs 50,000 is exempt from tax.
Tax Planning is a critical aspect of a successful financial plan as it helps you save tax and increase your savings which can be diverted towards your financial goals. As you plan for your financial goals, do keep in mind that stocks and mutual funds are one of the best investment options available in India.