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Save Taxes The Right Way- Investment And Tax Savings
Written by Nimisha Jain -Printed on - Date - 21st March 2022
One obligation any individual would happily like to undertake is paying higher taxes if your income bracket has increased but won't it be beneficial if along with paying taxes you get a chance to earn also. As said by Richard Carlson,” At tax time, it helps to remember that if your tax obligation has increased from the previous year, it’s usually because you’re enjoying more income. That’s a situation to which most of us aspire. Higher taxes are a price that we pay for greater success.” Generally, individuals try to invest in different plans to save taxes but with better financial planning not only can you spend money on paying taxes but make a strong economical portfolio. But an individual should check out the regime they will be following from the financial year 2020-21 old or new for availing deductions and tax exemptions.
Tax Saving Plans
To invest wisely to save taxes and make yourself stronger financially the factors to be considered are safety, liquidity, and returns and the way these returns will be taxed. As if the income earned is taxed then it will result in decreasing your returns than increasing it. Let us check out a few of these options available in the market but the point to be noted here is that these plans do not give big returns. Whether you have income from salary or from business or profession choosing tax savers that come with exempt-exempt-exempt status is always beneficial for us. The principal invested is applicable for deduction under Section 80C of the Income Tax Act, 1961 and the income in all of them is tax-exempt under Section 10.
1. Equity-Linked Savings Schemes
These saving schemes are diversified equity mutual funds that have two distinctive features in it firstly, investment in them qualifies for a tax benefit under Section 80C of the Income Tax Act,1961, up to a limit of Rs.1.5 lakh a year and the amount invested in it has a lock-in period of 3 years. The returns on these schemes are not fixed and neither assured but are dependent on the performance of equity markets. An individual can choose from dividend or growth options in them. They are more effective for someone looking to save for long-term needs. From 1 April 2020, dividends from an equity mutual fund scheme are taxable for the investor. Therefore, choosing the option of growth over dividend will yield better results.
2. Public Provident Fund
One of the hot favourite savings among investors is this scheme. The PPF offers 7.1% per annum for the quarter ending 31 March 2022. The minimum amount annually required to keep the account active is Rs.500, the maximum amount that can be deposited in a financial year is Rs. 1.5 lakh. It is a 15-year scheme and can be extended in a block of five years.
3. Employees Provident Fund
An employee contributes 12 % of one’s basic salary each month mandatorily towards his EPF account. The employee’s contribution qualify for tax benefit under Section 80C up to a limit of Rs.1.5 lakh a year. But the employer and employee contribution is qualified for interest as declared by the government each year which is tax-free in nature.
4. Unit Linked Insurance Plan
This is a two-way scheme that covers protection and saving. It not only provides life insurance but also channels one's savings into various market-linked assets for meeting long term goals. The scheme has a lock-in period of 5 years and a duration of 15 or 20 years. The fund value on exiting the policy allowed after 5 years or on maturity is tax-free. But from 1 April 2021, if the annual premium of your new ULIP investment is more than Rs. 25 lakh the return that you will get is not exempted from tax. In this case when the annual premium is more than Rs. 25 lakh the income on maturity is applicable for capital gain and charged accordingly under Section 112A.
5. Traditional Insurance Plans
Some traditional plans are an endowment, money - back or a whole life plan. These plans have a saving element and come with a fixed term and a fixed sum insured. The premiums are based on age at the time of entry, the life coverage and the period for which coverage is required. The premium paid qualifies for tax benefit under Section 80 C, the maturity amount and death benefit are tax-free. According to the new tax slab, life insurance premiums paid are not included under Section 80 C.
6. Sukanya Samriddhi Yojana
This is a small deposit scheme for the girl child. It offers a 7.6% per annum return which is tax-free. The annual deposit qualifies for Section 80 C benefit and the maturity benefits are non-taxable.
Conclusion-Make Right Choices
After careful analysis of your choice and requirement invest your income wisely to get a good economical portfolio along with tax saving plans.
You can still e-File your Tax Returns - Click here for CA Assistance
