TOP 6 WAYS TO SAVE YOUR INCOME TAXES
As the Financial Year (FY) 2022-23 is going to end soon, every salaried person is being asked by their employer for submitting investment proofs to save income tax on their salaried income. Though, people have a myth that they can save tax at the time of filing their Income Tax Return (ITR) and any money invested at that time would be deductible from their income which is not true. Any rupee invested on or before 31st March of every FY can only be considered to save tax for that particular FY. Now let’s understand the most popular investing ideas to save income tax this FY under section (u/s) 80C of Income Tax, 1961:
- Mutual Funds (MF) – Mutual funds are just like stocks trading on any stock exchange with the difference that they are managed by experienced fund managers. To save tax, one needs to invest in Equity Linked Saving Scheme i.e., ELSS which consists only equity portion and there is a Lock-in period of 3 years. This is a high-risk, high-return saving scheme.
- Employee Provident Fund (EPF) – EPF is a retirement benefits scheme for salaried employees which is calculated @12% annually of the Basic salary and Dearness allowance (DA). Also, the amount contributed through EPF is eligible for interest at the rate decided by Government every year. That interest income is also tax-free in the hands of employees which makes it more lucrative. This is a low-risk, medium-return saving scheme.
- Public Provident Fund (PPF) – PPF is a long-term investment option as it has a lock-in period of 15 years. Just like a savings bank account, anyone can open his/her PPF account in banks or post offices and it bears an interest rate of up to 7-8% annually which is also tax-free to a certain extent. This is a very low-risk, low-return saving scheme.
- Fixed Deposit (FD) – We all have heard about FD at some point of time in our lives and rather saved some money on it but very few of us knew that it can be used as a tax-saving tool as well. The best part of the FD is that investor knows about the interest rate and the maturity amount at the time of investing itself. Tax-saver FDs have a lock-in period of a minimum of 5 years and interest earned on the same is taxable. This is a low-risk, low-return saving scheme.
- Life Insurance Premium – It is a premium paid to insure our lives and financially secure our families from death or unwanted incidents that may happen in our life. Through this, the nominee of the person who got insured by paying a premium gets a fixed ‘Sum Insured’ on the death or severe illness of the insured. Premium paid for your own life or your spouse or child is eligible for deduction under section 80C.
- Home Loan Repayment – When an individual taxpayer pays his/her home loan, he is eligible to claim deduction for the interest part up to ₹ 2,00,000 u/s 24 of I-Tax Act along with the principal repayment u/s 80C.
Note: All the above investment and tax saving schemes are covered u/s 80C and the amount that can be collectively claimed is ₹1,50,000 i.e., the sum of all the schemes mentioned above cannot exceed ₹1,50,000.
