We have compiled a detailed and elaborate tax-saving guide to ensure your tax-planning journey is smooth sailing.
In India, taxes are levied on income, wealth, and property. Income tax is levied on individual incomes, while the central government levies corporate taxes. The wealth tax is levied on the net value of assets owned by individuals or companies.
List of Tax-Saving Options for Different SectionsFollowing is the list of sections along with their respective investments to help you understand how to save tax under each section-
Section 80C came into effect on April 1, 2006, as a replacement of the older Section 88. Currently, the maximum deduction allowed under Section 80C is ₹1,50,000 in a financial year. Earlier, until FY 2014-15, the limit was ₹1,00,000.
Equity Linked Savings Scheme: Equity Linked Savings Schemes are a type of mutual funds with a lock-in period of three years. It is the only mutual fund category in India, which qualifies for a tax deduction under Section 80(C) of the Income Tax Act. Investments are primarily made in equity markets, thus generating significantly higher returns than other tax-savings schemes in the long run. You can either choose to invest a lump sum amount or take the SIP (Systematic Investment Plan) route. However, you cannot withdraw your money before the three-year lock-in is over. Since these mutual funds invest in the stock markets, they could carry moderately high rik however the risk-factor gets evened out in the long run, making it one of the most profitable tax-saving investments. In terms of taxes on returns, on the gains from your ELSS investments exceeding ₹1 lakh in a financial year, you have to pay an LTCG tax of 10% . If you want to earn decent returns and can stay invested in the long run, ELSS investments can be an excellent venture. ELSS have the shortest lock in and highest returns among all tax saving options. And you can also escape LTCG tax, if you harvest it smartly.
Senior Citizen Savings Scheme: If you have already retired or applied for voluntary retirement, the Senior Citizens Savings Scheme can be an option as a risk-free tax-saving investment. It is a long-term savings option backed by the Indian government. The maturity period is five years and investors can seek an extension by an additional three years. The current interest rate is 8.6%, and you can only opt for a premature withdrawal after a year of opening the account. If you close your account before two years, 1.5% of the deposit is deducted as penalty. The interest is taxable, and TDS is applicable in case the interest exceeds ₹10,000 per annum. With an SCSS account, you can be assured of a regular income in your post-retirement years.
National Pension System: The National Pension System is a retirement benefit plan, administered and regulated by the Pension Regulatory Fund Authority of India. If you subscribe to the NPS, your money will be invested primarily in equity and debt instruments, and the value of the investment on maturity will depend on the performance of these asset classes. Currently, the equity exposure is capped in the range of 50% to 75% and is limited to 50% for government employees. You can either decide how much money gets invested in each asset class or opt for an age-based asset allocation model. On attaining the age of 60, you can only withdraw 60% of the maturity amount the remaining 40% is used to purchase an annuity to help you receive a pension. Premature withdrawals of up to 25% are only allowed after three years. NPS is the cheapest equity investment product there is.
