If you earn an income large enough to pay taxes on, you know how hectic tax season can be. Of course, you may not understand that unless you’re like me– tearing at my hair and furiously looking up various ways to make tax-saving investments only a few days before I am due to file my taxes.
While choosing the right tax-saving investment plans it is important to consider the factors like safety, returns, and liquidity. Also, it is important to keep a proper understanding of how the returns will be taxed. If the returns on investment are taxable, then the scope to create wealth over the long term gets constrained.
So here to help fellow tax-payers, like myself, with that desperate dash to file their taxes is a quick and hopefully helpful guide to where you can invest now to save some money on taxes.
Section 80C of the Income Tax Act provides several investment options to help reduce your taxable income up to a Rs 1.5 lakh limit for a single financial year.
You are allowed deductions on investments made in:
Public Provident Fund:
It has a 15-year lock-in period. You are required to invest a minimum of Rs 500 every year. Interest income on your deposits is also exempt from income tax.
Employee Provident Fund:
The employee makes a mandatory 12% of the basic salary each month towards the EPF account, which is exempt from taxable income, up to a specified limit.
Equity-linked saving scheme:
These come with a lock-in period of 3 years. Mutualfund houses often advertise such funds as tax-saving schemes. The investment in these is eligible for deductions up to the specified limit.
Small Savings Schemes, other than PPF:
Post Office Deposits, National saving certificate (NSC), Sukanya Smriddhi Yojana (SSY), ULIP, Senior citizen savings scheme (SCSS), tax-saving FD for five years, Infrastructure bonds, etc. Investment in any small savings scheme is entitled to tax benefits, though they vary.
Under Section 80C, you can also claim LIC premiums and investment in a tax-saving 5-year fixed deposit as a deduction.
It provides additional tax benefits on investment of up to Rs 50,000 under Section 80CCD.
Other sections of the income tax act also allow other deductions such as on medical insurance premium, home loan interest payments for first-time owners, donations to charitable institutions, etc.
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