Taxation might seem complex to new investors. However, with careful planning, investors can easily reduce their taxable income and save money in the long run. This article will walk you through some of the best tax-saving tactics for starters to ensure you take advantage of every opportunity.
Key Tax-Saving Options Under Section 80C
One of the most often utilized sections in the Income Tax Act by investors to lower their taxable income is Section 80C. You are eligible to deduct up to ₹1.5 lakh that you invest in different assets. Some common 80C investments consist of:
Public Provident Fund (PPF): An extended savings plan supported by the government that offers tax-free returns.
Equity Linked Savings Scheme (ELSS): A mutual fund plan with a three-year lock-in term that invests in equities is called the equities Linked Savings Scheme (ELSS). The best ELSS funds provide the possibility of more significant returns together with tax advantages. One such fund is Mirae tax saver fund, which can be a value addition for investors looking to opt for ELSS funds.
Unit Linked Insurance Plans (ULIPs): ULIPs are investment-based insurance plans that let you invest in debt or equity funds according to your level of risk tolerance. Section 80C allows for the deduction of premiums, while Section 10 exempts the maturity amount from taxes (10D).
National Pension System (NPS): NPS is a retirement-oriented investment plan that provides further tax advantages beyond the bracket of ₹1.5 lakh under Section 80C. For new investors planning for retirement, Section 80CCD(1B) offers an enticing choice with the ability to claim an additional deduction of ₹50,000.
Fixed Deposits (FDs): These tax-saving options have a five-year lock-in term and provide assured returns. Although they are considered low-risk investments, their returns are not as high as those of equity-based options.
Invest in the Sukanya Samriddhi Yojana (SSY): This government-backed initiative enables first-time investors with daughters to make tax-beneficial savings for their daughter’s future. Under Section 80C, contributions are deductible, and interest received is tax-free. This is the ideal long-term investment if you want to cover the costs of your child’s school or marriage.
This is a great starting point for beginners, allowing them to save taxes while growing their wealth.
Additional Tax-Saving Strategies
In addition to investing under Section 80C, there are other options to consider:
Health Insurance Premiums: Taxpayers can deduct their premiums for their family members and their own health insurance policies under Section 80D. Your taxable income may decrease significantly.
Home Loan Interest: Under Section 24(b) of the Income Tax Act5, if you have taken a home loan, you are eligible to deduct interest payments up to ₹2 lakh. In addition to lowering taxes, this method increases the value of your home.
Education Loans: Interest paid on college loans is deductible under Section 80E, with no maximum limit, which is advantageous for those investing in higher education.
Deductions on Donations: Contributions to charity organizations are eligible for tax deductions under Section 80G. Depending on the organization, the deduction might range from 50% to 100% of the total amount contributed. This lowers your taxable income while simultaneously supporting causes you believe in.
Conclusion
The tax-saving strategies highlighted in this article can help you reduce your tax liability. However, that shouldn’t be your only priority but a part of your entire financial strategy. Careful planning is the key here.
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