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From increasing the rebate to tweaking the number of slabs, the Budget 2023 has introduced a myriad of changes to the Indian tax regime. And to top it off, there are some great tax-saving schemes in the budget to aid the middle class.
These special schemes allow you to invest your money and become eligible for incredible tax deductions and exemptions under various sections of the Income Tax Act of 1961.
So, if you want to save some of your hard-earned money from the clutches of taxes, hop on board and explore these tax-saving schemes in India.
United Link Insurance Plan (ULIP)
Introducing the ULIP Life Insurance Plan, one of India’s top tax-saving investment options! It ensures financial stability for your family in case of an unfortunate event and brings tax benefits.
- You can deduct up to Rs. 1.5 lakh from your taxable income for life insurance premium payments under Section 80C of the Income Tax Act.
- Plus, the income on policy maturity is tax-free under Section 10(10D), as long as the premium is less than 10% of the sum assured.
- If you bought the policy before March 31, 2012, you can claim a 20% tax deduction on the premium.
For policies purchased after April 1, 2012, the deduction is up to 10% of the sum assured.
Public Provident Fund (PPF)
The Public Provident Fund (PPF) is your secret weapon for saving on taxes and growing your money. It’s tax-exempt throughout the investment lifecycle – no taxes on your contributions, interest earned, or withdrawals.
You can open a PPF account at a bank or post office, making it super convenient. Investing in PPF allows you to claim a deduction under section 80C of the Income Tax Act, reducing your taxable income by up to Rs. 1.5 lakhs.
With a 15-year lock-in period, PPF offers two options at maturity: withdraw the proceeds for personal use or extend the account for another 5 years to continue enjoying tax benefits and interest earnings.
ELSS Mutual Funds
What’s the deal with these income tax-saving funds? Well, there’s a short lock-in period of around 3 years which is the shortest among investment products. No need to wait forever for your funds to grow!
Here’s the icing on the cake: investing in ELSS mutual funds brings tax benefits under section 80C of the Income Tax Act. You can deduct up to Rs. 1.5 lakh from your taxable income. Save on taxes while your money grows. It’s as if you are hitting 2 birds with a single stone.
Fixed Deposits
It’s a less risky savings scheme compared to stocks. In tax-saving fixed deposits, the bank determines the interest based on various factors.
Have a look at these features:
- Investing in tax-saving fixed deposits allows you to deduct the amount from your taxable income under section 80C.
- Once invested, your money remains locked for a minimum of 5 years.
- Senior citizens enjoy higher interest rates on their investments.
- The main account holder can benefit from the tax deduction in joint accounts.
- These tax-saving options don’t allow premature withdrawals during the 5-year lock-in period.
NPS (National Pension Scheme)
The NPS, regulated by PFRDA, is a market-linked retirement product that enables systematic savings for Indian citizens.
Initially designed for government employees, it became available to all salaried individuals in 2009. NPS is a flexible and portable scheme recommended by tax experts as a popular tax-saving option.
It offers tax deductions of up to 1.5 lakh rupees under Section 80C and an additional deduction of Rs. 50,000 under Section 80CCD(1B). Individuals between the ages of 18 and 60 can contribute to this scheme, with a maximum entry age of 70 years.
The NPS provides an interest rate ranging from 9% to 12% and requires a minimum contribution of ₹500.
Senior Citizen Saving Scheme (SCSS)
The Senior Citizen Saving Scheme (SCSS) is a very special tax scheme backed by the Indian government for all citizens aged 60 and above.
Now, why should you consider this scheme? Well, it offers a pretty great interest rate of 7.4%, which is the highest you can get from any other government plan.
Here’s how it works: you need to invest a minimum of ₹1000 and go up to ₹15 lakhs. The investment period is around 5 years, giving you plenty of time to let your money grow. But wait, there’s more! Your principal amount is eligible for a tax deduction under section 80C.
So, not only are you saving for the future, but you’re also getting a little tax break.
There are more tax benefit schemes to explore, like the repayment of education loans, donations to charitable organizations, and even specific allowances like House Rent Allowance (HRA). So, gear up, be informed, and let the joy of tax savings guide you to financial bliss!
FAQs
Section 80C and 24b allow tax deductions on principal and interest, respectively. Sections 80EE and 80EEA allow tax deductions on interests, provided certain conditions are met. Further, 80C is also applicable on stamp duty paid for the home loan. However, all these sections have eligibility requirements and a limit on the maximum deduction.
Tax avoidance indicates using investment and other strategies to save taxes. It uses legitimate methods to save taxes, making tax avoidance/saving legal. Tax evasion is the concept of using illegal and unlawful ways to escape taxes. Tax evasion is a punishable offence in India.
A portion of the EMI paid on education loans attracts tax benefits under Section 80E. The interest component of the EMI can be claimed as a deduction under 80E, while the principal amount involved in the EMI is not eligible for deductions.
Donations made in kind are not eligible for tax deductions. Donations made in cash and cheque can avail deductions under 80G, provided they are made to specific funds/charitable institutions covered in the Income Tax Act. There are conditions and limits on the maximum deduction that can be claimed.
No, you cannot claim deductions under HRA and 80GG, both. 80GG is a provision specifically made for those who pay rent but do not receive house rent allowance, and hence are not eligible for HRA deductions.
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