We are once again approaching the end of a financial year. It is time when you scramble to arrange money for investing to save tax. For most, the period involves last- minute rush to put money in tax- saving instruments and use all deduction options given by the tax department. Tax investments need to be made by 31st March 2015 in order to avail these tax benefits and save taxes.
The income that an individual earns every year is subject to the Income Tax laws governing the country. The income tax rates are not the same for all. The rates varies basis on different income levels. So the total income tax an individual needs to pay depends upon the annual income he or she has earned in that given year. But, there are many ways by which one can save income tax.
Many tax payers frantically make investments to minimize taxes, without adequate knowledge of the various available options. The Income Tax Act offers many more incentives and allowances, apart from the popular 80C, which could reduce tax liability substantially for the salaried individuals.
Here are seven smart tips to help you save more and reduce taxes.
But things are going to be different this year. In his first Budget speech under the new Prime Minister Narendra Modi last year, Finance Minister Arun Jaitley announced many steps to lower the burden on individual taxpayers. Jaitley increased the Section 80C tax exemption limit from Rs 1 lakh to Rs 1.5 lakh.
Besides, it increased the deduction limit for interest paid on loan for a self occupied house from Rs 1.5 lakh to Rs 2 lakh.
This is apart from the increase in the basic exemption limit from Rs 2 lakh to Rs 2.5 lakh. These will help people in the 30 per cent tax slab save up to Rs 36,050 a year. The benefit will be up to Rs 25,750 for those in the 20 per cent tax slab and Rs 15,450 for those in the 10 per cent tax slab.
Let us explore the investment/ tax saving option available under Section 80C where the limit was enhanced by 50 per cent to Rs 1.5 lakh per individual per year.
Small Savings Schemes:
These include Public Provident Fund (PPF), National Savings Certificate (NSC), Senior Citizen Savings Schemes (SCSS) and five- year post- office deposits. Interest rates on these are set every year. At present, PPF is offering 8.7 per cent, five- year NSC 8.5 per cent, 10 year NSC 8.8 per cent and SCSS 9.2 per cent. The Budget 2014 also hiked the annual investment limit in Public Provident Fund or PPF. Risk- averse investors can now stock away more in the ultra- safe scheme. PPF scores high on safety, taxability and costs but returns are not so attractive and liquidity is not very high. Here is a word of caution: The interest rate on small savings schemes such as PPF is linked to the government bond yield and is likely to come down in the coming years.
Employee Provident Fund ( EPF)/ National Pension System:
This form of investment is applicable for the salaried professionals. In this case, the EPF is deducted on a mandatory basis and the contribution qualifies for tax benefits as per Section 80C of the Income Tax Act. The EPFs provide approximate yearly returns of 8.75 percent. Employee contributions up to 12 per cent basic salary in EPF and 10 per cent ( not more than Rs 1 lakh) in NPS are eligible for deduction under Section 80C. The employers contribution to the employees NPS account up to 10 per cent basic salary is also eligible for deduction.
Life Insurance/ Annuity Premium:
Life insurance premium, if not less than 10 per cent sum assured, and premium for annuity products ( deferred as well as immediate) are also eligible for tax deduction. This tool offers you the twin benefit of covering your life against the loss as well as tax saving. In several cases, the insured also ends up getting a decent return upon maturity of life insurance policy. To extract maximum tax benefits, you need to invest your earnings wisely in different insurance plans. This is where your investments come into play, as a lot of investment plans come with several benefits. With the help of tax deduction, a break granted by the government, one can save tax on premium paid. The maturity proceeds of life insurance product are tax free as well. You could look at long term objectives like investing in a pension plan for a life after retirement or a life cover to secure your family's future.
Tax saving Mutual Funds or Equity Linked Saving Schemes:
The tax saving mutual funds and equity linked saving schemes are ideal for taxpayers who have not yet been able to make the maximum investment permissible as per the Section 80C of the Income Tax Act and cannot also put their money in other tax saving instruments. The investors in ELSSs need to remember that these have lock in periods of 3 years and are traded in the share market which implies that there can be a fair bit of risk factor involved. Ideally, one should go for such investments by approaching credible investment advisors.
Bank Fixed Deposits:
Like five- year post office deposits, money put in bank deposits with a maturity period of five or more years is eligible for deduction within the Rs 1.5 lakh Section 80C limit. These investment instruments are eligible for tax deduction according to the Section 80C of the income tax code. At present, the fixed deposits are providing an interest of approximately 8.75 per cent. The investors though need to remember that they will have to pay taxes on the maturity value of these, which effectively reduces the returns by some extent.
1.ICICI Prudential Tax Plan
2.Reliance Tax Saver (ELSS) Fund
3.HDFC TaxSaver
4.DSP BlackRock Tax Saver Fund
5.Religare Tax Plan
6.Franklin India TaxShield
7.Canara Robeco Equity Tax Saver
8.IDFC Tax Advantage (ELSS) Fund
9.Axis Tax Saver Fund
10.BNP Paribas Long Term Equity Fund
You can invest Rs 1,50,000 and Save Tax under Section 80C by investing in Mutual Funds
Invest in Tax Saver Mutual Funds Online -
For further information contact Prajna Capital on 94 8300 8300 by leaving a missed call
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