We’re all interested in learning how to reduce our tax burden or, more specifically, how to manage our investments. Planning your taxes is vital, but so are tax-saving techniques. You may save and make money with the greatest tax-saving plans in India.
Why do so few of us in India manage to reduce our tax obligations? The problem can be a lack of information or a challenge fitting the best option into your financial plans. We have listed all of India’s top tax-saving investment opportunities to evaluate them and help you make a wise investment decision.
Remember that there should be more of a purpose than just tax savings while considering how to save tax in India. The objective must be to invest in the most advantageous investment opportunity while reducing liabilities. This article has identified the top tax-saving strategies for 2023.
The Top 5 Tax Savings Schemes in India
1. ELSS Mutual Fund
Mutual funds that invest a sizable amount of their assets in equities are known as equity-linked savings schemes. The fund also has a three-year lock-in period required by law, which is the shortest investment product and one of India’s greatest tax-saving programmes.
Section 80C of the Income Tax Act allows for a tax deduction of up to Rs. 1.5 lakh for investments made in ELSS funds. Investments made in lump sums and through systematic investment plans are eligible for the deduction (SIP). There is always a considerable risk because ELSS funds invest extensively in equities.
ELSS funds provide both capital gains and tax reductions. It is one of the most well-liked tax-saving strategies among investors.
Generally speaking, taxpayers who are ready to take some risk and wish to claim Section 80C tax deductions of up to Rs 1.5 lakh should think about investing in ELSS. These mutual funds have a minimum of 60% of their portfolio invested in equities and equity-related securities, making them equity-oriented. Keeping your money invested for a long period is essential to profit from the returns.
2. Sukanya Samridhi Yojana (SSY)
One of the most significant tax-saving schemes is now the Sukanya Samriddhi Yojana. The Indian government introduced it in 2015 as a component of the Beti Bachao Beti Padhao initiative. It significantly affected the entire population. In accordance with the plan, a taxpayer may invest monthly deposits and simultaneously receive interest through a fixed-income investment. Sukanya Samriddhi Yojana investment is a deductible expense under section 80C of the income tax code.
The interest rate on the plan is set by the Indian government every quarter and is due at maturity. The plan has a 21-year lock-in period and will mature when that time has passed. For 15 years, a minimum deposit of Rs. 250 must be made yearly. The account will be disconnected if the minimum payment is not made within a year. You must pay the initial Rs. 250 deposit plus a penalty of Rs. 50 to get the account reactivated.
The prerequisites for opening a Sukanya Samriddhi account, which offers tax savings, are as follows:
- This programme only provides benefits to female children.
- No girl kid may be older than ten years old. A one-year grace period is offered, allowing the parent to invest before the girl’s kid becomes 10 years old.
- The investor must provide evidence of the daughter’s age.
3. National Pension Scheme ( NPS )
One of the finest tax-saving plans is the National Pension Scheme (NPS), which enables you to save money for the future while receiving a steady income. A Tier-1 account is locked in until the subscriber becomes 60 years old. A tier-1 account can accept a maximum contribution of Rs. 15,000 per year, which is deductible in accordance with section 80C of the Income Tax Act.
Make your deposits using online or offline mode techniques using legitimate crediting cards such KYC digital, credit card (Visa & MasterCard), or debit cards issued by any Indian bank or other financial institution recognised by RBI to make payments tax deductible.
Under Section 80CCD, individuals are allowed to deduct up to Rs. 1.5 lakh by investing in NPS. Additionally added was a new sub-section 1B that provided an extra deduction of up to Rs. 50,000 for NPS payments paid by individual taxpayers.
4. Unit Linked Insurance Plan (ULIP)
One of India’s most significant investment schemes is the ULIP Life Insurance Plan. It ensures that one’s family will be financially supported when one dies. The taxpayer can gain from the income tax act benefit by purchasing a life insurance policy. Under section 80C of the Income Tax Act of 1961, the premium for a life insurance policy may be written off up to a maximum of Rs. 1.5 lakh.
Section 10(10D) further provides that the income from the policy’s maturity is not subject to tax. The income is tax-free if the premium is less than 10% of the amount insured. If the insurance beneficiary’s nominee receives the money, the nominee will not be required to pay taxes. The taxpayer may deduct 20% of their tax on the premium paid under Section 80C of the 1961 Act.
The subsequent conditions also hold:
- The taxpayer acquires a life insurance policy on or before March 31, 2012.
- He is the only named insured on the insurance, not their spouse or child.
- The tax deduction for the premium paid is up to 10% of the amount guaranteed if the life insurance policy is purchased after 1 April 2012.
5. Donations made to charitable institutions
Donations provided to different organisations are deductible under Section 80G. You should use a check or an Internet transfer to pay the donation amount. This will enable a full tax deduction for the sum paid to a recognised charitable institution.
According to this provision, any cash transfer over Rs 2,000 is ineligible for this deduction. To claim this deduction, you must get a stamped receipt from the institution where the donation was made.
To qualify for a tax deduction, donations can generally be put into four categories.
- 100% tax-deductible donations with no upper limit, such as those made to the Central Government’s National Defense Fund.
- Contributions that are eligible for a 50% deduction without any upper limit, such as those made to the Prime Minister’s Drought Relief Fund or the Jawaharlal Nehru Memorial Fund.
- 100% tax-deductible donations are subject to a 10% limit on adjusted gross income. The gift must go to a government agency or any other recognised local organisation, institution, or association that will be used to facilitate family planning.
- Donations with a 50% deduction are limited to 10% of adjusted gross total income for institutions that meet the requirements of Section 80G(5).
We hope that you found this blog to be interesting and that you will make the most of its practical applications. The above-mentioned are a few schemes that help in saving tax; there are many schemes the government launched in the market. Please check all the schemes before investing to save tax and for the best scheme available in the market.