What is tax? In order to fund economic development and social programs, governments levy taxes on the people of the country. It is mandatory to pay taxes to the Indian government.
Any Indian citizen under the age of 60 who earns more than Rs 2.5 lakhs a year is subject to income tax. Taxes like direct taxes are also due from the following sources of income:
- Unbroken Lineage of Hindus (HUF)
- Individuals As A Whole (BOI)
- Persons in a group (AOP)
- Local Authorities
- Corporations
- Companies
- Any and all “artificial Juridical Persons”
What Is Tax Saving Investment And What Options Are Available To You?
What is tax saving investment? A penny saved is a penny earned, as the old adage goes. You can reduce your taxable income and increase your income by making tax-exempt investments or tax saving investments. Various investments, savings, and expenditures incurred by the taxpayer in a given financial year are eligible for deductions under the income tax act.
The following are the tips for maximizing the tax savings provided under sections 80C,80D, and 80EE:
- To lower your taxable income, invest Rs 1.5 lakh under Section 80C. Under Section 80CCD (1b), an additional deduction of Rs 50,000 can be claimed for NPS investments.
- Section 80D allows a maximum deduction of Rs. 1,00,000 (Rs. 50,000 for the self and family if you are a senior citizen and Rs. 50,000 for your senior citizen parents) for medical insurance purchases.
- Section 80EE allows you to claim a deduction of up to Rs 50,000 for interest on a home loan.
Investment options under Sec 80C
What is tax saving investment under Sec 80C like? Section 80C of the Income Tax Act provides a wide range of tax-deductible investments and expenses for individuals and HUFs in India.
| Investment | Returns | Lock-in Period |
| 5-Year Bank Fixed Deposit | 6% to 7% | 5 years |
| Public Provident Fund (PPF) | 7% to 8% | 15 years |
| National Savings Certificate | 7% to 8% | 5 years |
| National Pension System (NPS) | 12% to 14% | Till Retirement |
| ELSS Funds | 15% to 18% | 3 years |
| Unit Linked Insurance Plan (ULIP) | Varies with Plan Chosen | 5 years |
| Sukanya Samriddhi Yojana (SSY) | 0.076 | N/A |
| Senior Citizen Saving Scheme (SCSS) | 0.074 | 5 years |
Alternatives to the Section 80C Tax Deduction
What is tax saving investment alternative to Sec 80C? In addition to the 80C deductions, there are a number of other Section 80 deductions available to help reduce your taxable income. A few examples of tax savings include those for health insurance premiums and mortgage interest which are explained below:
Health insurance premiums: Upto Rs. 50,000 will be claimed for medical insurance premiums. Self-spouse, children, and dependent parents under 60 years of age are all eligible for a premium of Rs 25000. Medical insurance premiums paid for senior citizens are eligible for reimbursement up to Rs 1,00,000 per year. If senior citizens do not have health insurance, they can claim up to Rs 50,000 in medical expenses under section 80D.
Home loan interest: What is tax exemption under Sec 24? Section 24 allows deductions for interest paid on a home loan up to Rs 2 lakhs. As a result of Section 80EE, you can also deduct up to Rs 50,000 in home loan interest from your taxable income. Section 80EEA of the Internal Revenue Code extends the deadline for claiming an additional Rs 1.5 lakh in interest on a new home purchase made under the affordable housing program.
It is possible to reduce your taxable income by claiming the principal portion of a home loan under Section 80C up to Rs 1.5 lakh and the interest portion as a deduction from the income from house property.
Deduction for Donations: In accordance with section 80G, you can deduct any donations you make to specified organizations or funds.
For Educational Loan: Section 80E of the tax code allows for the deduction of interest paid on educational loans.
Importance of Choosing The Right Tax Investment?
What is tax saving investment checklist? Make sure you know how your tax-exempt investment returns will be taxed before making a decision on the best tax saving investments. With taxation, the long-term profitability of your asset is limited because taxes will eat away at your profit margins.
Tax saving financial products such as the National Savings Certificate (NSC), Senior Citizens’ savings schemes SCSS, 5-year time deposits with banks and post offices, the interest amount is taxed as part of your income.
Because of this, even though they save you money in the current year, the interest income becomes a tax liability every year until the end of your loan term.
It’s important to keep in mind that instruments can save investors up to a certain amount of money on taxes, both when they invest and when the money is withdrawn. As a result of the tax advantages, the returns on these investments are likely to be lower than those of the market.
After factoring in tax, a taxable instrument’s post-tax return decreases. The post-tax return on a 5-year bank fixed deposit of 7%, excluding the surcharge, is 4.9 percent per year for 30-percent of taxpayers.
Takeaway
Make sure that your tax saving investment decisions aren’t based solely on the desire to save money on taxes. You won’t regret investing in them in the long run, so don’t worry about regretting it later, if you invest wisely.
