If you’re an Indian taxpayer looking to save some money on your income taxes, you can employ various strategies. Whether you’re an employee, a business owner, or a freelancer, there are options available to help you keep more of your hard-earned money. By making wise financial decisions throughout the year, you can take advantage of tax deductions and credits to lower your tax bill come tax season. If not, there are still some last-minute options you can try.
Take a look at these three money-saving income tax strategies that can help maximise savings and reduce tax liability.
Public Provident Fund
First introduced in India in 1968, the Public Provident Fund (PPF) was designed to encourage small contributions for investment and return. Over the years, the PPF has emerged as a popular investment vehicle for individuals looking to accumulate retirement funds while also reducing their yearly taxes.
Under section 80C of the Income Tax Act, 1961, the PPF interest and maturity amounts are completely tax-free, making it an attractive option for taxpayers looking to maximise their savings. However, it’s important to note that annual investments exceeding Rs 1.5 lakh will not earn interest and will not be eligible for tax savings.
National Pension Scheme
This investment cum pension plan by the Indian Government is open to any Indian citizen between the ages of 18 to 70 years. Subscribers of the NPS are eligible for tax benefits under Sec 80 CCD (1), which is capped at Rs. 1.5 lakh under Sec 80 CCE.
However, NPS subscribers can also claim an additional deduction for investments up to Rs. 50,000 in their Tier I accounts, exclusively under subsection 80CCD (1B). This deduction is in addition to the Rs. 1.5 lakh available under section 80C of the Income Tax Act, 1961. It’s important to note that tax benefits are only applicable for investments made in Tier I accounts.
Fixed Deposits
Investments made through tax-saving FDs qualify for tax savings under section 80C of the Income Tax Act, making them an attractive option for individuals looking to reduce their tax burden.
Tax-saving FDs are also considered a safer investment choice compared to equity-based tax savings options since they are debt investments. With a lock-in term of just 5 years, tax-saving FDs offer a relatively short-term investment option with the added bonus of a monthly interest payout option.
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