{"id":11391,"date":"2020-06-24T15:32:28","date_gmt":"2020-06-24T10:02:28","guid":{"rendered":"https:\/\/corpbiz.io\/learning\/?p=11391"},"modified":"2020-06-24T15:40:18","modified_gmt":"2020-06-24T10:10:18","slug":"how-to-save-income-tax","status":"publish","type":"post","link":"https:\/\/corpbiz.io\/learning\/how-to-save-income-tax\/","title":{"rendered":"A Complete Guide on How to Save Income Tax"},"content":{"rendered":"\n

Have you ever dreamt of isolating your income from probable taxes? We bet you did, maybe countless times. But let face it- this is something you can’t refuse or overlooked. Well, most of us look at taxes as a financial burden. What could maximize our stress could be a lack of knowledge in regards to tax planning. The taxpayers spend their lot of time figuring out ways to maximize tax saving. If tax saving is our goal, then look no further. This guide will explain everything regarding how to save income tax and offers comprehensive viewpoint on profitable investments. <\/p>\n\n\n\n

Tax-saving and the Income\nTax Act<\/h2>\n\n\n\n

1961 was the year when the Income Tax Act came into effect. Everything concerning imposition, collection, and recovery of income tax comes under the radar of the Income Tax Act. As a taxpayer, you may have multiple channels to earn money during your life. As per income tax 1961, your profits or earnings attract taxes in a given financial year. <\/p>\n\n\n\n

Whether you are a private employee or an entrepreneur or whether you mill out income from renting or investment, you are accountable for paying taxes to the government. To ease the complexity of tax saving, the Income Tax Act’s section 80C, 80D, and 80G suggest numerous ways to maximize your savings on taxes. If you were figuring out a solution for tax saving, here are some recommendations that you might be interested in.  <\/p>\n\n\n\n

High-risk appetite<\/h3>\n\n\n\n

If you are a proactive investor\nand expecting high returns along with tax benefits under Section 80C, you can\nopt to invest \u20b91.5 lakh per year in Equity Linked Saving Schemes (ELSS). It is\nnothing but a tax saving mutual fund that has the potency to double your\nreturn. In short, this is an effective way of availing short-term tax benefits\nand impressive long-term returns.  <\/p>\n\n\n\n

Moderate risk appetite: <\/h3>\n\n\n\n

If you are the one who has a moderate risk appetite, you can invest partial income in ELSS and the rest in tax-saving fixed deposits. This strategy helps you avail tax benefits under Section 80C and render a base to balance your risk and returns.<\/p>\n\n\n\n

Low-risk appetite: <\/h3>\n\n\n\n

If you are a risk-averse, you\ncan invest in Public Provident Fund (PPF) or saving fixed deposits. Adopting\nthis strategy helps you make a tax deduction of \u20b91.5 lakh under Section 80C and\nthe minimum risk exposure. However, here you can’t expect a high rate of return\non investment. It could turn into a severe issue if you take inflation into\nperspective. <\/p>\n\n\n\n

Let understand this through an\nexample – Let’s say you are availing long-term investment in Public Provident\nFund (PPF) for your child’s education. And all you are doing this under the\ninfluence of education inflation, which lies somewhere around 10-12% every\nyear. It means you are not going to make a good return. Precisely, you can save\nup to \u20b946,800 on tax every year via these investments. <\/p>\n\n\n\n

Additional benefits\nbeyond Section 80C<\/h3>\n\n\n\n

If you are looking to maximize\ndeductions beyond the scope of section 80C, then you can opt for the investment\noptions like Atal Pension Yojana or National Pension Scheme. The Income Tax Act\nSection 80CCD (1B) allows deductions of up to \u20b950,000 on these schemes. A\nsaving of up to \u20b915,600 is possible under this section. <\/p>\n\n\n\n

In addition to that, you can\nrejoice tax benefits for paying premiums towards health insurance for family\nand terms insurance plan. Typically, Section 80D of the Income Tax Act offers\nthis benefit. <\/p>\n\n\n\n

A saving of \u20b915,600\/year is achievable through these health insurance payments. Henceforth, these offers collectively can render the saving up to \u20b978,000\/year. <\/p>\n\n\n\n

\"benefits<\/figure><\/div>\n\n\n\n

Investment schemes under Section 80C<\/h2>\n\n\n\n

Income Tax Act 1961-Section 80C\nallows deductions from taxable income for the significant reduction in your tax\nliabilities in a financial year. <\/p>\n\n\n\n

Section 80C<\/h3>\n\n\n\n

This act allows taxpayers to claim deduction benefits on payment made towards financial products, contributions, or investment. Section 80C has been playing its part since April 1, 2006, as an alternative cum replacement to previous section 88. In the current scenario, this section allows the deduction up to \u20b91,50,000 in a financial year, which is quite significant if we compare it with the previous limit, which was \u20b91,00,000.\u00a0<\/p>\n\n\n\n

Read our article<\/b>:New Income Tax Returns Forms: CBDT Notified FY 2019-20\/ AY 2020-21\n<\/a><\/mark><\/p>\n\n\n\n

Equity Linked Savings\nScheme: <\/h3>\n\n\n\n

Equity Linked Savings Schemes\nrepresent the family of mutual funds with three years of the lock-in period.\nThe best part is that this category of mutual fund qualifies for a tax\ndeduction in the context of Section 80(C) of the Income Tax Act. <\/p>\n\n\n\n

Equity markets are a conducive platform for investment and making higher returns in the long run. Either you can opt for SIP (Systematic Investment Plan) or invest a lump sum amount. However, the withdrawal of money, in this case, is not possible until the three-year lock-in is over. Since mutual funds investment is made in the stock markets, they are subjected to high risk. However, the risk factor is not so significant if you consider long-run benefits. Hence, it is arguably the way to save income tax<\/strong><\/a> in the current time.<\/p>\n\n\n\n

The amount of gain made from\nELSS investments is subjected to tax deduction i.e., LTCG tax of 10%. However,\nthis condition is only applicable when the gain exceeds \u20b91 lakh in a financial\nyear. ELSS investments could be the best option if you seek a decent return and\nlooking for long term investment. When contrasted with all tax saving options,\nELSS seems more profitable due to higher returns and shortest lock-in. And you\ncan also override LTCG tax if you stay prudent and proactive. <\/p>\n\n\n\n

Senior Citizen Savings\nScheme: <\/h3>\n\n\n\n

Senior Citizen Savings Scheme\nis the best tax-saving investment for the retired citizens and those who have\napplied for voluntary retirement. This scheme comes with an assurance\nof Government arbitration and has flexible maturity periods. Moreover, the SCSS\noffers 8.6% of the rate of interest.  <\/p>\n\n\n\n

The provision for premature\nwithdrawal under this scheme is applicable after one year of opening the\naccount. Also, if you opt to close the account before two years, the penalty of\n1.5% will be imposed on the total sum of a deposit. <\/p>\n\n\n\n

Remember, the interest under this scheme is taxable, and TDS is also applicable if the interest surpasses \u20b910,000 per annum. The SCSS account ensures a regular flow of income in post-retirement years. It is an old school way to save income tax. <\/p>\n\n\n\n

National Pension\nSystem: <\/h3>\n\n\n\n

The National Pension System is a government authorized retirement benefit plan regulated by the Pension Regulatory Fund Authority of India. The one scheme allows you to save income tax in an easier way. If you already a subscriber of this scheme, then you probably know that your money is used for investment purposes, primarily in equity and debt instruments. The performance of these asset classes will eventually decide the value of your investment on maturity.  <\/p>\n\n\n\n

The equity exposure under this\nscheme ranges from 50% to 75%. Since this scheme supports the age-based asset\nallocation model, your exposure to portfolio risk will reduce as you grow\nolder. <\/p>\n\n\n\n

At the age of 60, you will\nbecome eligible to withdraw 60% of the maturity amount, and remaining will be\nutilized to purchase an annuity that will cover the pension part. And as far as\npremature withdrawal is concerned, a 25% withdrawal is permissible under this\nscheme but only after three years.  <\/p>\n\n\n\n

Term Life insurance\npremium<\/h3>\n\n\n\n

The premium concerning life insurance policies is subjected to tax deductions under Section 80C<\/strong><\/a>. The life insurance policies premium can render the benefit of tax deduction as per Section 80C. The eligible candidate for this scheme is the one who paid premiums to insure family, self, or represent the Hindu Undivided Family.\u00a0<\/p>\n\n\n\n

As per Income Tax Act Section 80C<\/strong>[1]<\/strong><\/a><\/sup>, the premium paid (up to the maximum limit of Rs.1,50,000) in the context of insurance policies is eligible for a tax deduction. The deductions are only applicable in the event when the amount of premium paid is 20% of the sum assured a total amount of the policy in a financial year. These provisions are applicable to the life insurance policies that have been issued before March 31, 2012.<\/p>\n\n\n\n

Furthermore, the policies\nissued after April 1, 2012, the tax deductions are applicable to the premium\npaid in a financial year is 10% of the sum assured.<\/p>\n\n\n\n

A life insurance policy is a must-have financial backup that everyone should opt for and its save income tax too. It comes really handy in case of the untimely death of the family member. This policy act as an added perk for those who are looking for tax benefits.  <\/p>\n\n\n\n

Public Provident\nFund: <\/h3>\n\n\n\n

The Public Provident Fund (PPF)\ncomes under the category of long-term investment scheme where tax benefits are\nmore apparent. The PPF account renders 7.9% p.a. of interest rate, compounded\nannually, and comes with 15 years of the lock-in period. It means that there is\nno possibility of premature withdrawal for 15 years. However, partial\nwithdrawal is allowed after the completion of six years. <\/p>\n\n\n\n

The investment criteria under this scheme are as follows:-<\/strong><\/p>\n\n\n\n

\"investment<\/figure><\/div>\n\n\n\n

If your investment surpasses\nthe maximum limit, you will not be eligible to earn any sort of interest. PPF\ncertainly offers a bit more stability in terms of risk, which is a safe\ninvestment option. The best part of PPF is that you were not entitled to pay\nany taxes at the time of withdrawal or deposit. The government allows the\nsmooth transition of PPF corpus to NPS to ensure more flexibility and high\nreturns. <\/p>\n\n\n\n

National Savings\nCertificates: <\/h3>\n\n\n\n

The National Savings\nCertificate is a government-oriented investment option that is fixed by nature.\nTo scheme is available at almost all the post office pan India. All you need to\nvisit your nearby post office to initiate your investment. This scheme renders\nthe five years of lock-in period and 7.9% per annum of the interest rate. You don’t need to invest a large sum\nof money to get started with this scheme. A Rs 100 will be sufficient to\npurchase an NSC certificate.  <\/p>\n\n\n\n

The NSC certificate is available in the following denominations. <\/strong><\/strong><\/p>\n\n\n\n