All you need to know about some Best Tax Savings Schemes in India

Tax planning is an essential aspect of financial management, and in a country like India, where taxes play a significant role in an individual’s financial life, it becomes crucial to explore the best tax-saving schemes available. The Indian government offers several investment options that not only help taxpayers save on taxes but also facilitate wealth creation. In this article, we will delve into some of the best tax savings schemes in India that can assist you in optimizing your tax liability while building a financially secure future.

However, before we move on to discuss Best Tax Savings Schemes in India, it is important for us understand the principle behind tax saving i.e., Tax Planning. 

Understanding Tax Planning in India

Tax Planning is a crucial aspect of financial management for individuals and businesses alike. In India, where the tax structure can be intricate and multifaceted, effective tax planning can significantly impact one’s financial well-being. It involves making strategic decisions to legally minimize the tax liability by taking advantage of various exemptions, deductions, and incentives provided by the Indian Government.

Importance of Tax Planning

Tax planning is more than just finding ways to reduce taxes. It encompasses a comprehensive approach to managing finances and investments in a way that aligns with one’s financial goals while optimizing tax benefits. The importance of tax planning in India can be understood through the following points:

• Financial Efficiency: Effective tax planning helps individuals and businesses manage their financial resources efficiently, ensuring that they retain a larger portion of their income or profits.
• Wealth Accumulation: By strategically planning their taxes, individuals can save a significant amount of money over time. These savings can be channeled into investments that facilitate wealth accumulation.
• Legal Compliance: Tax planning is about utilizing legal provisions and incentives provided by the government to minimize tax liability. Engaging in tax evasion, which involves illegal methods to reduce taxes, can lead to severe penalties.
• Risk Management: Proper tax planning involves evaluating risks associated with financial decisions. By diversifying investments and understanding the tax implications, individuals can manage financial risks more effectively.
• Retirement Planning: Tax planning plays a crucial role in retirement planning. By making informed decisions about investments and withdrawals from retirement accounts, individuals can ensure a steady income during their retirement years.

Key Aspects of Tax Planning in India

Tax planning in India involves understanding the country’s taxation system and utilizing various tools and strategies to minimize tax liability. Here are some key aspects of tax planning in India:

• Income Tax: Income tax is a significant component of the Indian tax system. Tax planning involves optimizing income and investments to reduce taxable income. This can be achieved through investments in tax-saving instruments like Public Provident Fund (PPF), National Savings Certificate (NSC), Equity-Linked Savings Scheme (ELSS), and more.
• Deductions and Exemptions: The Income Tax Act, 1961 provides various deductions and exemptions, such as those for home loan interest, medical expenses, and donations to charitable institutions. Effective tax planning involves leveraging these provisions to lower the overall tax liability.
• Capital Gains Tax: Tax planning also includes managing capital gains tax on the sale of assets such as property or stocks. Utilizing exemptions available under Section 54 and Section 54F for property transactions or indexation benefits for long-term capital gains can significantly reduce the tax burden.
• Business Tax Planning: For businesses, tax planning involves structuring transactions and operations in a way that optimizes tax liability. This includes decisions related to depreciation, carry-forward of losses, and utilizing tax incentives provided to specific industries.
• Goods and Services Tax (GST): GST is a value-added tax levied on the supply of goods and services. Businesses engage in GST planning by understanding input tax credits, proper invoicing, and compliance to ensure the correct amount of GST is paid.

With regard to Tax Planning, Legal Window has a team of professionals that will provide you with the greatest help, quick delivery, and guarantee the highest level of customer satisfaction. For Tax Planning, please contact our team at 072407-51000 or admin@legalwindow.in.

Best Tax Savings Schemes in India

Section 80C is a provision within the Income Tax Act, 1961 that allows eligible individuals and Hindu Undivided Families (HUFs) to claim deductions from their total income for investments made in specified instruments. The maximum deduction allowed under this section is ₹1.5 lakh per financial year. It is important to note that the benefits under Section 80C are available to both salaried and self-employed individuals. It is also one of the best investment plan under 80C.

In India, there are several tax-saving investment options available that not only help you save taxes but also enable you to grow your wealth over time. These schemes are designed to encourage people to invest in various sectors of the economy while providing them with substantial tax benefits. Let’s take a closer look at some of the best tax saving schemes in India.

• Equity-Linked Savings Schemes (ELSS) – ELSS investment option is a popular tax-saving mutual fund scheme that invests primarily in equities. It comes with a lock-in period of three years, which is the shortest among tax-saving investment options. ELSS funds have the potential to deliver higher returns compared to traditional tax-saving instruments due to their equity exposure. However, it’s important to note that they also carry a higher level of risk.
• Public Provident Fund (PPF) – PPF is a long-term savings scheme backed by the government. It offers a tax deduction under Section 80C of the Income Tax Act and has a lock-in period of 15 years. PPF provides a fixed, tax-free interest rate that is revised by the government every quarter. One of the significant advantages of PPF is its EEE (Exempt-Exempt-Exempt) status; meaning the investment, interest earned, and maturity amount are all tax-exempt.
• National Savings Certificate (NSC) – NSC is a government-backed savings instrument with a lock-in period of five or ten years. The interest earned on NSC is taxable, but it qualifies for a deduction under Section 80C. NSC is a low-risk investment option suitable for individuals looking for fixed returns. The interest is compounded annually, making it an attractive choice for risk-averse investors.
• Tax-Saver Fixed Deposits – Several banks offer tax-saver fixed deposits with a lock-in period of five years. These deposits qualify for deductions under Section 80C. While they offer guaranteed returns, the interest earned is taxable. Tax-saver FDs are a suitable option for those seeking fixed returns without exposure to market risks.
• National Pension System (NPS) – NPS is a voluntary, long-term retirement savings scheme that offers both tax benefits and a platform for wealth creation. It provides two investment choices: active choice (where you can decide the asset allocation) and auto choice (where the allocation is managed based on your age). A portion of the NPS maturity corpus can be withdrawn tax-free, while the remaining amount is used to purchase an annuity.
• Unit Linked Insurance Plans (ULIPs) – ULIPs are insurance-cum-investment products that provide tax benefits under Section 80C. They offer the dual advantage of life insurance coverage and market-linked returns. ULIPs come with a lock-in period of five years. However, it’s important to carefully understand the charges associated with ULIPs, as they can impact overall returns.
• Senior Citizens’ Saving Scheme (SCSS) – As the name suggests, SCSS is aimed at senior citizens. It offers regular interest payouts and comes with a lock-in period of five years, extendable for an additional three years. SCSS qualifies for tax benefits under Section 80C and provides a fixed interest rate that is higher than most fixed-income instruments.
• Employee Provident Fund (EPF) – EPF is a mandatory savings scheme for salaried employees in India. Contributions to EPF qualify for deductions under Section 80C. The interest earned on EPF is tax-free, and the maturity amount is also exempt from tax. EPF is a reliable long-term savings option that also ensures financial security during retirement.

Some other Best Tax Savings Schemes under Income Tax Act, 1961

There are some other Best Tax Savings Schemes in india other than Section 80C of Income Tax Act, 1961 are:

• Section 80D – Health Insurance Premium – One of the most critical aspects of financial planning is safeguarding your health and that of your loved ones. Section 80D of the Income Tax Act, 1961 allows you to claim deductions on the premium paid towards health insurance policies for yourself, your family, and even your parents. This deduction not only reduces your taxable income but also provides a crucial safety net against medical expenses.
• Section 24(b) – Home Loan Interest – Owning a home is a dream for many, and if you have a home loan, you can leverage Section 24(b) to your advantage. This section allows you to claim deductions on the interest paid on your home loan. For a self-occupied property, you can claim up to ₹2 lakh per annum. If the property is rented out, there’s no upper limit on the deduction, making it a substantial tax-saving option.
• Section 10(14) – House Rent Allowance (HRA) – For salaried individuals who reside in rented accommodations, the House Rent Allowance (HRA) can provide tax relief. Under Section 10(14), a portion of your HRA can be exempt from taxation, subject to certain conditions. This can significantly reduce your taxable income, thereby lowering your overall tax liability.
• Section 80E – Education Loan Interest – With the rising costs of education, pursuing higher studies can be financially burdensome. However, Section 80E offers relief by allowing a deduction on the interest paid on education loans. This deduction is available for loans taken for higher education for yourself, your spouse, children, or even a student for whom you are a legal guardian.
• Section 80G – Donations to Charitable Institutions – Contributions made to charitable organizations not only support noble causes but also offer tax benefits. Under Section 80G, donations to specified charitable institutions and funds are eligible for deductions. It’s essential to ensure that the organization is approved by the Income Tax Department for claiming the deduction.
• Section 80TTA and 80TTB – Interest Income – Interest earned from savings accounts and deposits is taxable, but under Section 80TTA, individuals and Hindu Undivided Families (HUFs) can claim a deduction of up to ₹10,000 on interest income from savings accounts. For senior citizens, Section 80TTB provides a deduction of up to ₹50,000 on interest income from deposits.
• Section 80EEA – Affordable Housing Loan – To promote affordable housing, Section 80EEA offers an additional deduction of up to ₹1.5 lakh on home loan interest for properties valued up to ₹45 lakh. This is over and above the benefits available under Section 24(b) and Section 80C.
• Section 10(14A) – Special Allowances – Certain special allowances, such as those for travel, conveyance, and uniform, are given to employees by their employers. Under Section 10(14A), these allowances can be partially or fully exempt from taxation.

These provisions of Income Tax Act, 1961 are some of the best income tax saving scheme which you should keep in mind to save your tax.

Way Forward

In conclusion, these top tax saving schemes provide a plethora of options to individuals seeking to optimize their tax liability while building a solid financial foundation. The choice of scheme depends on various factors such as risk tolerance, investment horizon, and financial goals. It’s advisable to consult with a financial advisor before making investment decisions to ensure that the chosen scheme aligns with your overall financial plan. Remember that while tax savings are important, it’s equally essential to consider the growth potential and liquidity of the investment to achieve a well-balanced financial portfolio.