Income Tax Saving - Investment Options, Planning and Tips

Table of content 

• Introduction

• What is Income Tax Saving?

• What is Income Tax Planning?

• What are Income Investment Options?

• Tips to plan for income tax savings.

• Conclusion 

Introduction

Income tax saving is a dream for the taxpayers that help them save money for themselves though in the legal manner. Ever since the government started imposing tax, individuals have tried their best to find tax saving investment options. The money saved via investment options can be used to generate income otherwise. It can aid in growing the financial asset of the company. But making income tax saving possible is not everyone’s cup of tea. Not every individual is aware of how they can save portions of their hard earned income. 

If you fall in the group of people who are unaware of tax saving investment options, further reading is a must for you.

What is Income Tax Saving?

Do you shell a major portion of your salary in tax?

Do you feel that quite a bit of your monthly income is given away in taxes?

Are you in the zone thinking that had the money not spent in taxes, you would have saved it for the security of the family?

If the answer to all of this is yes, then you must understand clearly what income tax saving is?

Income Tax saving is following stated patterns to save income to reduce income tax liability, all followed legally. When you save in the name of taxes, that can be counted as money earned. If there is no issue in comprehending the concept of tax saving so far, you will be good further also.

To save tax you need tax planning. Let us explore what tax planning is and what are the possible ways of doing so.

What is Tax Planning?

Tax Planning is evaluating tax liabilities after considering all the sources of income and making tax saving investments. It  is one’s discretion to choose ways to save tax through investment tools. If not possible alone, a tax consultant can help you in tax planning. 

The income tax deductions that you deploy for saving taxes uses various investments, savings and expenditures to verify eligibility. Tax planning allows you to pay the lowest taxes possible. 

Talking of tax planning, you must know different tax saving investment options that will reduce your income tax liabilities. But before that you must know the possibile sections that allow income tax deductions.

Tax Saving Sections Applicable Under Income Tax Act, 1961.

Section 80C: You can make an investment of Rs.1.5 lakhs under Section 80C to reduce tax liability. Some of the investment tools that you can buy include life insurance policies like term plan, ULIP, savings plan, pension plan, and child plan. You can also invest in the National Pension Scheme, tax saving fixed deposit, National Savings Certificate. 

Under section 80C, additional Rs.50, 000 deduction is allowed if you invest money in NPS under 80CCD. 

Section 80D: The premium you pay for your mediclaim policies is eligible for income tax deductions under Section 80D. Maximum deduction that is permissible under this section is Rs.1, 00, 000/-. 

Section 80EE: You are free to claim deductions up to Rs.50, 000 on home loan interest under Section 80EE.

After understanding the sections of deductions, let us see income tax saving investment options.

Income Tax Saving Investment Options.

These are the options in which you can invest to save income tax.

Under Section 80C:

• Life Insurance Policy: Buy a life insurance policy that gives you the option to invest along with giving you life cover. Choose to invest for a long period of time as then you can earn high returns over the investments made. Different life insurance products that you can purchase include a term plan, ULIP, savings plan, pension plan, and child plan. In all the cases, you are able to create financial security for your family enabling them to live strongly even when you are not alive. 

Other than the cover protection, life insurance tax benefits are worth keeping in account. The policies give you tax benefit of Rs.1, 50, 000/- 

• Fixed Deposit: Fixed deposits can be made in any bank or NBFCs. It is the financial instrument that helps customers to save money. The rate of interest on fixed deposits is predetermined to help earn interest on the fixed lump sum. These come with a lock-in period of 5 years. It is the duration of time for which you cannot withdraw the money you have invested.
• ELSS Funds: Equity Linked Saving Scheme is a tax saving instrument which helps you claim deduction under Section 80C. It is the only type of mutual fund that is eligible for tax deductions. ELSS has a lock-in period of 3 years and yields returns of 15% to 18%. 

• Unit Linked Insurance Plan: Unit Linked Insurance Plan is a dual benefit life insurance policy that gives tax benefit. The returns on investment varies according to the funds you put your money into. ULIP has a lock-in period of 5 years before which you are not allowed to withdraw the funds.

• Senior Citizen Savings Scheme: A senior citizen savings scheme is a government-backed retirement benefit program. Citizens above 60 years can avail the benefit of SCSS. The scheme also allows you to take tax benefits other than giving you a rate of return of 7.4%.

• National Savings Certificate: National Savings Certificate is a fixed income investment scheme that you can avail at any branch office. These are the savings bonds that motivate the small to middle income earners to invest money. At the same time, they seek tax benefits also. The rate of return in NSC is 6.8%  and the minimum amount of investment is Rs.1000/-.

• National Pension System: National Pension System is a voluntary retirement savings scheme under the jurisdiction of the Ministry of Finance of the Government of India. The tax exemption allowed under the NPS system is Rs.2 lakhs. You can make a minimum contribution of Rs.500/- for the scheme. 

• Other deductions that you can claim under Section 80C are home loans that will give you tax benefit up to Rs.1.5 lakhs.

Under Section 80D 

To save tax under Section 80D, the best you can do is buy a mediclaim policy. The policy can be for yourself, for your wife, dependent children and dependent parents. The tax benefit for each is different. This deduction applies to top-up policies and critical illness cover also.

These payments are eligible for deductions under Section 80D:

• Medical insurance premium.
• Expenses made for preventive health check-up
• Medical expenses incurred for the treatment of senior citizen(above 60 years)
• The premium contribution to the Central Government Health Scheme. 

Deductions that are applicable under Section 80D are:

Under Section 80EE:

Section 80EE allows tax deductions up to Rs.50, 000/- on home loan interest which is over above the limit applied under Section 24. The latter section states that a tax deduction of Rs.2 lakhs will be claimed under Section 24.

Clear with the sections that will give you maximum tax deduction benefits? The other fact that you must be aware of include tips to plan tax saving investments.

Tips for Income Tax Saving Investment Options

Here are some tips to keep in mind to manage income tax saving investment options:

• Start tax planning at the beginning of the year as that is the best time to plan.
• Take your time to decide about investment planning. Avoid making hurried decisions. Choose the investment options that suffice your purpose of tax planning as well as of investments.
• Keep in mind your current tax-saving expenses, such as insurance premiums , kid tuition fees, EPF contributions, home loan repayment, and so on.
• To determine how much to invest, subtract this sum from Rs 1.5 lakh. If your expenses exceed your limit, you don't have to invest the entire amount.
• Based on your objectives and risk tolerance, select tax-saving investments. Popular investments include ELSS funds, PPF, NPS, and fixed deposits.

Conclusion:

When it is about tax paying, it is rare that people are willing to do so. Most of us are only trying to save tax in the best possible manner. Well tax planning to deduce the exact tax liability considering tax saving investment options makes the entire process legal. It is the duty of every common individual to contribute towards the maintaining the public infrastructure by paying taxes on time. For more information on tax planning with life insurance policy and other investment tools you can dead: Life Insurance Tax Benefits.