Money may not necessarily be the essential thing in life, but it sure is necessary for living comfortably. That is precisely why you work hard, so you can earn enough to give your family all the comforts they deserve.
You even set financial goals to create enough wealth so that you can realize your dreams in the long run. However, in doing so, taxes eat away your hard-earned money and put a financial burden on you.
While meeting with income tax payment is a mandatory requirement, and so you cannot avoid it altogether, a smart way would be to minimize this liability.
The first thing before using tax savings calculator is that you should know the sections that offer exemptions and deductions as well as the various tax savings investments in India. So, let us guide you about these aspects a little better.
Sections Covering Tax Saving Investments
While there are many sections under the Income Tax Act, 1961 that offer tax saving benefits, there are two sections that cover tax saving investments. They are as follows:
This section offers deduction and exemption benefitup to the limit of Rs. 1.5 lakh.The tax benefits provided under this section cover both individuals and HUFs (Hindu Undivided Family).
The various tax saving investments covered under this section include:
Unit Linked Insurance Plan (ULIP)
Equity Linked Saving Scheme (ELSS)
Public Provident Fund (PPF)
Fixed Deposits (FDs)
Employee Provident Fund
National Savings Scheme
This section also coversthe premium on Life Insurance Policy, such as Term Plan under its purview.
This section offers tax deduction benefits on the premium payments made towards a health insurance policy up tothe limit of Rs.25,000 if you hold itin your name or that of your spouse or dependent children.
The limit will vary on the premium you pay towards policy in your parent’s name, depending on their age.
Now,to help you get a step closer to using a tax savings calculator, we have listed down five such investment options that you can consider adding to your portfolio. Have a look:
Unit Linked Insurance Plan
The ULIP is one smart plan that is an insurance cum investment instrument that provides you with both financial coverage and gains in the long run. A part of the premium you pay is towards your insurance coverage, and the remaining is invested in various market funds like debt, equity, or other securities.
Under section 80C, this also acts as a tax saving benefit investment as it offers you deduction up to the limit of Rs. 1.5 lakh on the premium that you pay. Further, you also receive tax exemption benefits on the accumulated returns or death benefit under section 10(10D).
Public Provident Fund
A government-backed scheme, PPF offers attractive interest rates on invested money annually. It is simple to open a PPF account with as minimum as Rs. 500. Covered under Sec 80C, it offers you a deduction benefit of up to Rs. 1.5 lakhs. Also, both the interest and the maturity amount you get are entirely tax-free.
Another excellent option for tax saving is a term plan that offers your loved ones withfinancial security by providing them with a sum assured in case of your untimely demise. Term insurance plans, as provided by reputable insurers like Max Life Insurance, also offer you the option to choose rider benefits such as coverage against critical illnesses, the return of premium upon maturity.
When you buy such a plan, you will need to pay a nominal sum of money as a policy premium on which you will enjoy tax benefits of up to a limit of Rs. 1.5 lakh. Also, the compensation benefit your family shall receive will be fully tax-exempt as per section 10(10 D).
However, do take note that any policy issued on or after April 1, 2012, will be eligible to a maximum tax exemption of up to 10% of the total sum assured.
Equity Linked Savings Scheme(ELSS)
ELSSis the tax-saving variant of mutual fund that puts at least 80% of your money into equity and equity-related funds. It has a 3 -year statutory lock-in period and offers good returns to investors.
On investing in ELSS, you can enjoy maximum tax exemption of up to Rs. 1.5 lakh. Also, returns on ELSS funds up to Rs. 1 lakh isexempt from long-term capital gain tax.
Health Insurance Policy
While looking for tax saving benefits, you must also consider buying a health insurance policy to maintain financial stability in case of any medical emergencies in the future.
It is covered under Section 80D of the Income Tax act and allows you tax exemption on premium payments up to the limit of Rs. 25,000 each year.
If the policy is for your parents, then you will get additional taxsaving benefits of up to the same limit of Rs. 25,000. However, if your parents are senior citizens, then you will enjoy the deduction benefits of up to Rs. 50,000 annually.
Use Tax Savings Calculator and Minimize Your Burden
Now that you know various sections and tax saving investments in India buy the right ones for getting different benefits.
You may also use the tax savings calculator to get an estimate of how much you will be able to save. The most important advantage of using a tax savings calculator is that it will help you plan your investment portfolio more decisively.
So, choose smart investments, use a tax savings calculator, and save your hard-earned money.
Disclaimer: No Deccan Chronicle journalist was involved in creating this content. The group also takes no responsibility for this content.