Planning your taxes at the 11th hour may lead to bad investment decisions or less than optimal tax-saving strategies. That's why it is important to plan your tax saving investments right at the start of the fiscal year.
Let’s walk through the best tax-saving options available in India under various sections of the Income Tax Act, 1961. We will start with the most popular tax saving investment options under Section 80C.
How To Save Tax Under Section 80C?
You can claim tax deductions of up to 1.5 lakhs under Section 80C of the Income Tax Act with investment options like ELSS funds, NPS, PPF, and more.
1. ELSS Funds
ELSS funds are considered to be the best tax saving option under Section 80C because of the low lock-in period and potentially high returns.
- Lock-in period of 3 years
- Average returns of 12 to 15%
- Tax savings up to ₹46,800
- Capital gains are taxable
Best ELSS Funds In India For 2023*
|
ELSS Fund Name
|
3-Year Returns
|
5-Year Returns
|
Min. Investment Amt. on Cube
|
|
Mirae Asset Tax Saver Fund
|
17.12%
|
22.84%
|
₹1000
|
|
Kotak Tax Saver Fund
|
13.91%
|
16.99%
|
₹1000
|
Explore ELSS funds on Cube now
2. Tax Saving FDs
Tax Saving Fixed Deposits (FDs) are like your average bank FDs but carry a mandatory lock-in period.
- Lock-in period of 5 years
- Average returns range from 5.5 to 7.5%
- Tax deductions up to ₹1,50,000
- Interest is taxable
Read this blog to know more about alternatives to FDs
3. EPF
Employee Provident Fund (EPF) is available for employees who work for companies that fall under the PF act.
The employer will deduct a fixed sum from your salary every month and deposit it to the EPF account. The employer will also contribute the same amount from their pocket to your EPF account.
- Withdrawable 2 months after leaving a job while unemployed or working for a company that does not fall under the PF act
- 8.5% interest rate
- Employee contributions over 2.5 lakhs p.a taxable as per Union Budget 2021
4. NPS
National Pension Scheme (NPS) is a government-backed investment option where investors can claim a tax deduction of up to ₹1,50,000.
- Lock-in period: until retirement
- Partial withdrawals allowed under special circumstances
- Average return of 8% to 10%
- Entirely non-taxable
Read this blog to find out about the best retirement investments
5. PPF
Public Provident Fund (PPF) is a government-backed investment option where deposits are eligible for a tax deduction.
- 15-year lock-in period
- 7.1% interest rate
- Interest earned in non-taxable
6. Sukanya Samriddhi Yojana
Parents or guardians of a girl child can open an account under the Sukanya Samriddhi Yojana Scheme.
- Account can be maintained until the girl child turns 21
- Interest rate 7.6%
- Investment limit ₹1,50,000 per financial year
Other 80C Deductions
- The principal amount of a home loan
Tax Saving Investment Options Under Section 80CCD
Contributions to the National Pension Scheme (NPS) and Atal Pension Yojana can also be used to claim deductions under Section 80CCD (a subsection of 80C).
Under Section 80CCD (1)
- 10% of salary (Gross + Dearness Allowance) or 10% of Gross Income
- Additional deduction allowed under 80CCD (1B): ₹50,000
How To Claim Deductions Under Section 80D?
The life insurance premium that you pay is eligible for tax deduction under section 80D. The deductible amount varies based on who's paying the premium and for whom.
Here's the breakdown of the tax deduction:
- Up to ₹25,000 for self, spouse, and children
- Up to ₹50,000 for self, spouse, and children, and dependent parents (below 60)
- Up to ₹75,000 for self, spouse, and children, and dependent parents (above 60)
- Up to ₹1,00,000 for senior citizens who are paying a premium for self, spouse, and children, and dependent parents (above 60)
It's important to note that you shouldn't get life insurance coverage just to save tax. It is an important tool that protects you from illness and disasters. Thus, it would be advisable to choose your plan wisely.
Read this blog to learn about the 5 best investment tips for 2021
What's Tax-Deductible Under Section 80E?
The interest that you pay on a loan for higher education either for self, spouse, or children (as a parent/guardian) can be claimed as a deduction under Section 80E.
However, the loan must be taken from a recognized financial establishment or charitable institution. You can claim the deduction for up to 8 years. There is no maximum deduction claim amount.
How To Save Tax Under Section 80EE?
First-time homeowners can claim a deduction of up to ₹50,000 under Section 80EE using the interest payment on a home loan. Interest paid on a vehicle loan for an Electric Vehicle is also eligible for deduction.
What Are The Tax Benefits Under Section 24?
Homeowners can further claim a deduction of up to ₹2,00,000 on their home loan interest under Section 24 if they or their family live in the house or even if it is vacant.
The whole interest amount can be claimed as a deduction if the house is rented out. Municipal taxes paid by a homeowner in full can be claimed as a deduction under Section 24.
Other Tax Benefits Under Different Sections
Under Section 80G
You can claim a deduction under this section if you've made a charitable donation to a government recognized charity or social institution.
Under 80GG
A tenant can claim a deduction under Section 80GG for the house rent paid in case the tenant does not own a house of their own or get HRA.
Conclusion
Planning your taxes the right way can help you save wealth and in the case of ELSS funds, it can even help you grow wealth over the long term with lucrative returns.
However, it's important to begin your tax planning today to invest wisely for FY 2021-22. Remember to choose your tax-saving investments based on merit and need than to save a quick buck.
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FAQs
Q. What's the current tax bracket in India?
1. For regular tax-paying individuals
|
Net Income Range
|
AY 2021-22
|
|
≤ ₹2,50,000
|
-
|
|
₹2,50,000 to ₹5,00,000
|
5%
|
|
₹5,00,000 to ₹10,00,000
|
20%
|
|
> ₹10,00,000
|
30%
|
2. For tax-paying senior citizens (above 60)
|
Net Income Range
|
AY 2021-22
|
|
≤ ₹3,00,000
|
-
|
|
₹3,00,000 to ₹5,00,000
|
5%
|
|
₹5,00,000 to ₹10,00,000
|
20%
|
|
> ₹10,00,000
|
30%
|
3. For tax paying super senior citizens (above 80)
|
Net Income Range
|
AY 2021-22
|
|
≤ ₹5,00,000
|
-
|
|
₹5,00,000 to ₹10,00,000
|
20%
|
|
> ₹10,00,000
|
30%
|
4. For tax-paying Hindu Undivided Families (HUFs)
|
Net Income Range
|
AY 2021-22
|
|
≤ ₹2,50,000
|
-
|
|
₹2,50,000 to ₹5,00,000
|
5%
|
|
₹5,00,000 to ₹10,00,000
|
20%
|
|
> ₹10,00,000
|
30%
|
Q. How can I plan for taxes when I have multiple sources of income?
Ans. Tax planning for multiple sources of income involves optimizing deductions, exemptions, and investments to minimize the overall tax liability.
Q. What are the documents and proofs required for claiming tax deductions?
Ans. For tax deductions, you typically need to provide documents like investment certificates, premium payment receipts, and proofs of interest or principal payments.
Q. Is it advisable to seek professional guidance for tax planning in 2023?
Ans. Seeking professional guidance, such as consulting with a tax advisor or financial planner, can be beneficial for creating a personalized tax-saving strategy.
Q. What are the deadlines for tax-saving investments in 2023?
Ans. The deadline for tax-saving investments in 2023 may vary, but for most instruments under Section 80C, it's typically by the end of the financial year (March)
*Note: Facts & figures are as of 12-04-2021. While we update our blogs regularly, download the Cube Wealth app to know the latest information.
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